BIR Ruling [DA-189-04]

April 6, 2004 BIR RULING [DA-189-04] 116 VAT 061-01 HDW Information Tech. Inc. Rm. 814 State Center Building 333 J. Luna Street Binondo, Manila Attention: Ms. Jocelyn Y. Averia President Gentlemen : This refers to your letter dated July 1, 2003 which was indorsed to this Office by Revenue Region No. 6, Manila, by way of its 1st Indorsement dated September 30, 2003 requesting for an opinion on whether your business operation is exempt from the 3% percentage tax under Section 116 of the Tax Code of 1997. It appears that HDW Information Tech. Inc. (HDW), is a domestic corporation duly registered with the Securities and Exchange Commission (SEC) under SEC Registration No. 009437 dated August 22, 2001; that it is accredited by the Technical Education and Skills Development Authority (TESDA) on June 11, 2003; that the primary purpose for which HDW was organized is "To establish and operate educational institute or learning center offering courses of study in computer technology and other related courses. To train the nation's manpower in the required technical skills for national development and to engage in such other computer related business activities as may be necessary to further the aims and purposes of the corporation." In reply thereto, please be informed that Section 116 of the Tax Code of 1997 provides that any person whose sales or receipts are exempt under Section 109(z) of the Code from the payment of value-added tax and who is not a VAT-registered person shall pay a tax equivalent to three percent (3%) of his gross quarterly sales or receipts: Provided, that cooperatives shall be exempt from the three percent (3%) gross receipts tax herein imposed. Corollarily, Section 27(B) of the same Code provides that proprietary educational institutions and hospitals which are non-profit shall pay a tax of ten percent (10%) on their taxable income except those covered by Subsection (D) hereof; . . . . The term "proprietary educational institution" means any private school maintained and administered by private individuals or groups with an issued permit to operate from the Department of Education, Culture and Sports (DECS), or the Commission on Higher Education (CHED), or the Technical Education and Skills Development Authority (TESDA), as the case may be, in accordance with existing laws and regulations. Section 109(z) of the Tax Code pertains to transactions which are subject to VAT, but are nevertheless exempt from its imposition because the annual gross sales/receipts derived therefrom do not exceed the P550,000.00 threshold limit. For this reason the said transactions are not subject to VAT because the annual gross sales/receipts do not exceed P550,000.00. However, it is subject to the 3% percentage tax imposed under Section 116 of the same Code. TcIAHS Obviously, the 3% percentage tax imposed in Section 116 of the Tax Code of 1997 refers only to transactions covered by Section 109(z) of the said Code. Thus, services rendered by educational institutions which are accredited by TESDA are subject to the 10% VAT per VAT Ruling No. 061-01 and to the 10% tax on their taxable income as prescribed in Section 27(B) of the said Code but are exempt from the 3% percentage tax prescribed in Section 116 of the Tax Code of 1997. IN VIEW OF THE FOREGOING, this Office holds that HDW, a TESDA accredited educational institution, although subject to the 10% VAT and the 10% tax on their taxable income is nevertheless exempt from the 3% percentage tax. 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 null and void. Very truly yours, (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group