BIR Ruling [DA-111-97]

March 19, 1997 BIR RULING [DA-111-97] Rural Bank of Leganes (Iloilo), Inc. Leganes, Iloilo Attention: Mr . Angelo Celis VP Manager Gentlemen : This refers to your letter dated May 20, 1996 requesting in effect for a ruling as to whether the Rural Bank of Leganes (Iloilo), Inc. is exempt from VAT as provided under Section 15 of R.A. No. 7353 which reads as follows: "Section 15. All rural banks created and organized under the provision of this Act shall be exempt from the payment of all the taxes, fees and charges of whatever nature and description, except the corporate income tax and local taxes, fees and charges for a period of five (50 years from the commencement of operation." llcd In reply, please be informed that while it is true that under the abovecited Section 15 of R. A. No. Rural Bank 7353, otherwise known as the Rural Bank Act of 1992 and implemented by Revenue Regulations No. 16-93; rural banks are exempt from the payment of all taxes, fees and charges of whatever nature and description, except the corporate income tax and local taxes, fees and charges. However, said exemption from taxes pertains only to those taxes for which rural banks are directly liable. The tax exemption privilege of Rural Bank of Leganes covers only taxes that are relevant to the operation of a rural bank and taxes for which it is directly liable and does not extend to indirect tax like VAT the amount of which may be shifted or passed on to the buyer by the seller of goods and services. The VAT in your purchase of goods and services is no longer a tax but an additional cost which becomes part of the amount of the contract price to be paid by you. (BIR Ruling No. 169-95 dated October 25, 1995) Very truly yours, ALICIA P. CLEMENO Assistant Commissioner (Legal Service) By: ALICIA L. TOMACRUZ Head Revenue Exec. Assistant (Legal Service)