BIR Ruling [DA-049-06]

February 15, 2006 BIR RULING [DA-049-06] Sections 106 & 109 (H); BIR Ruling No. DA-040-02 Ms. Leonila D. Sese Divine Light Academy, Inc. No. 7 Rosal St., Doa Manuela Subd. Pamplona, Las Pias M a d a m : This refers to your letter dated March 30, 2005 requesting for a ruling that the tuition fees paid through BPI credit cards are exempt from income and value-added taxes. Documents show that your institution is a non-stock, non-profit educational institution registered with the Securities and Exchange Commission (SEC) under SEC Registration No. 126714 issued on May 24, 1985; that its purpose is "to establish, operate and maintain a complete nursery, kindergarten and elementary school; and to give a sound and complete education to children and youth in the Philippines and to promote their intellectual and moral development"; and that it was granted Government Recognition by the Department of Education under Government Recognition No. 009. s. 2001 dated December 7, 2001 for its Complete Secondary Course effective school year 2001-2002, E-0007, s. 1987 dated September 23, 1987 for Complete Elementary Course effective school year 1987-1988, and P-008 s. 1984 dated February 23, 1984 for Nursery/Kindergarten Course effective school year 1983-1984; that on July 14, 1989, it was issued a Registration Certificate for Non-VAT Taxpayer under Registration No. NV-4B2-34-001549; and that it is registered with the BIR under RDO Control No. 94-530-000027-NV on June 16, 1994. cDCIHT In reply, please be informed that paragraph 3, Section 4, Article XIV of the 1987 Constitution provides, viz: "(3) All revenues and assets of non-stock, non-profit educational institutions used actually, directly and exclusively for educational purposes shall be exempt from taxes and duties. . . ." The exemption under Section 4(3), Article XIV of the 1987 Constitution refers to internal revenue taxes and customs duties, in appropriate cases, imposed by the national government on all revenues and assets of non-stock, non-profit educational institutions used actually, directly and exclusively for educational purposes (BIR Ruling No. 248-88 dated June 6, 1988). As a non-stock, non-profit educational institution, you are exempt from tax on all revenues derived in pursuance of your purpose as an educational institution and used actually, directly and exclusively for educational purposes. You are, however, subject to internal revenue taxes on income from trade or business or other activity the conduct of which is not related to the exercise or performance of your educational purposes or functions (Section 2, Finance Department Order No. 137-87, as amended by Finance Department Order No. 92-88). Accordingly, revenues derived from and assets used in the operations of cafeterias/canteens, dormitories, bookstores are exempt from taxation provided they are owned and operated by your school as ancillary activities and the same are located within the school premises (Section 2, Finance Department Order No. 137-87, as amended by Finance Department Order No. 92-88; BIR Ruling No. 248-88 dated June 6, 1988; BIR Ruling No. ENPS-012-98 dated November 25, 1998; and BIR Ruling No. ENPS-006-99 dated May 17, 1999). Accordingly, if the cafeteria/canteen is being leased, income from the operation thereof is subject to income tax. Likewise, gross receipts from your operations as a non-stock, non-profit educational institution are exempt from the 10% value-added tax (VAT) pursuant to Section 109(H) of the Tax Code of 1997, as amended by Republic Act No. 9337, provided that it is accredited as such by the Department of Education, the Commission on Higher Education or by the Technical Education and Skills Development Authority. THaCAI However, this exemption does not extend to its other activities involving sale of goods and services which are subject to the 10% VAT imposed under Section 106 of the same Code. Hence, as long as you engage in the regular conduct or pursuit of a commercial or economic activity, including transactions incidental thereto, you are subject to VAT (BIR Ruling No. 248-88 dated June 6, 1988; BIR Ruling No. DA-40-02 dated March 7, 2002; and BIR Ruling No. S30-27-2003 dated November 21, 2003). Section 116 of the Tax Code of 1997 subjects to the 3% percentage tax "any person whose sales or receipts are exempt under Section 109(V) of this Code from the payment of VAT and who is not a VAT-registered person . . . ." The 10% VAT or the 3% percentage tax, whichever is applicable, is a tax on the business transaction or activity and is an indirect tax which the seller may pass-on or shift to the customer who ultimately bears or assumes the burden of the tax. Accordingly, your sale of goods or services is subject to either the 10% VAT or 3% percentage tax if such gross sales or receipts from sale of goods and services do not exceed P1,500,000.00, which tax payment may legitimately be passed on to your customers i.e., students (BIR Ruling No. 248-88 dated June 6, 1988). In view of the foregoing, tuition fees paid by parents through BPI credit cards are exempt from income and value-added taxes. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered as null and void. Very truly yours, (SGD.) JOSE MARIO C. BUAG Commissioner of Internal Revenue