BIR Ruling [DA-093-06]

March 7, 2006 BIR RULING [DA-093-06] Department of Budget and Management Malacaang, Manila Attention: Mr. Eduardo P. Opida Assistant Secretary Gentlemen : This refers to your letter dated June 14, 2004 with a follow up letter dated November 25, 2005 signed by the Assistant Commissioner Virginia A. Trinidad Collection Service of the BIR requesting for clarification of VAT Review Committee Ruling No. 030-98 dated September 22, 1998 relative to the computation and the rates to be used in determining the franchise tax shares of the beneficiary agencies and local government units. EaScHT In the aforesaid VAT Ruling, this Office ruled that "xxx xxx xxx "In a nutshell, all legislative franchise grantees, except those engaged in the business of radio and/or television broadcasting, telephone and telegraph, electric, gas and water services, became subject to VAT in lieu of their franchises upon the effectivity of R.A. No. 7716 and R.A. No. 8421, the provisions of their respective franchises to the contrary notwithstanding. "Since PRCI is a legislative franchise grantee other than the excepted classes enumerated above, your sale of services has, beginning January 1, 1996 (the date when R.A. No. 7716 took effect), become subject to the 10% value-added tax. Accordingly, your operation is now subject to 10% VAT in lieu of the franchise tax, to be computed based on your gross receipts as this term is defined under Section 108(A) of the Tax Code of 1997, rather than on your gross earnings. "It is likewise represented that pursuant to your franchise, you are under obligation to remit the 25% franchise tax payments imposed on your gross earnings to certain beneficiaries in accordance with the following allocation: National Government 5% Local Government where race track is located 5% Philippine Charity Sweepstakes Office 7% Phil. Anti-Tuberculosis Society 6% White Cross 2% 25% ==== "You now pose the question on whether you are still under obligation to remit the allocations as described above in the event that your coverage to VAT is confirmed. In this regard, it is our considered opinion that R.A. No. 7716 and R.A. No. 8241 merely replaced the franchise tax and its rate with that of VAT and did not affect your obligation under your franchise. It follows that your payment of value-added taxes beginning January 1, 1996 shall be distributed and paid as provided for in your legislative franchise in the same manner as your payments of franchise taxes have been so distributed and paid." In reply thereto, please be informed that Section 283 of the Tax Code of 1997 provides "Sec. 283. Disposition of National Internal Revenue . National internal revenue collected and not applied as hereinabove provided or otherwise specially disposed of by law shall accrue to the National Treasury and shall be available for the general purposes of the Government, with the exception of the amounts set apart by way of allotment as provided for under Republic Act No. 7160, otherwise known as the Local Government Code of 1991. "In addition to the internal revenue allotment as provided for in the preceding paragraph, fifty percent (50%) of the national taxes collected under Sections 106, 108 and 116 of this Code in excess of the increase in collections for the immediately preceding year shall be distributed as follows: "(a) Twenty percent (20%) shall accrue to the city or municipality where such taxes are collected and shall be allocated in accordance with Section 150 of Republic Act No. 7160, otherwise known as the Local Government Code of 1991; and "(b) Eighty percent (80%) shall accrue to the National Government." Corollarily, Section 284 of Republic Act (R.A.) No. 7160, otherwise known as the Local Government Code of 1991, provides that "Sec. 284. Allotment of Internal Revenue Taxes . Local government units shall have a share in the internal revenue taxes based on the collection of the third fiscal year preceding the current fiscal year as follows: (a) On the first year of the effectivity of this Code, thirty percent (30%); (b) On the second year, thirty-five percent (35%); and (c) On the third year and thereafter, forty percent (40%); xxx xxx xxx On the other hand, Section 9 of R.A. No. 7953 so provides that in consideration of the franchise and rights herein granted to the Philippine Racing Club, Inc., the grantee shall pay to the National Treasury a franchise tax equal to twenty-five per centum (25%) of its gross earnings from the horse races authorized to be held under its franchise which is equivalent to the eight and one half per centum (8 1/2%) of the total wager funds or gross receipts on the sale of betting tickets during the racing day as mentioned in Section 6 of R.A. No. 7953, allotted as follows: (a) National Government, five per centum (5%); the province or city/municipality where the races track is located, five per centum (5%); (b) Philippine Charity Sweepstakes Office, seven per centum (7%), (c) Philippine Anti-Tuberculosis Society, six per centum (6%) and (d) White Cross, two per centum (2%). The said tax shall be paid monthly and shall be in lieu of any and all taxes, except the income tax, of any kind, nature and description levied, established or collected by any authority whether barangay, municipality, city, provincial or national, on its properties, whether real or personal, from which taxes the grantee is hereby expressly exempted. Prescinding from the above-cited laws, it is clear that notwithstanding that PRCI is now subject to VAT, the above-named beneficiaries are nevertheless entitled to their corresponding share in the collection of the aforesaid taxes, since VAT merely replaced the franchise tax and its rate. Thus, every person, including PRCI, liable to pay VAT is required to file a quarterly return of the amount of its quarterly gross sales or receipts within the twenty five (25) days following the close of taxable quarter. Accordingly, it is not PRCI that should remit the share of the local government unit under its franchise but the National Treasury in excess of the increase in collections for the immediately preceding year pursuant to Section 283 of the Tax Code of 1997. TDEASC Please be guided accordingly. Very truly yours, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service