BIR Ruling [DA-249-05]

June 9, 2005 BIR RULING [DA-249-05] Section 107; BIR Ruling No. 30-035-2004 Jesus Is My Strength 527 South Star Plaza South Express Way cor. Estrella St. Makati City Attention: Ms. Evelyn R. Angeles Program Anchor Gentlemen : This refers to your letter dated March 4, 2005 requesting for a ruling exempting you from the payment of value-added tax (VAT). It is represented that you have a radio program on DWBL, 1242 khz, radio station entitled "Jesus Is My Strength" which airs on the AM frequency band every Saturday from 11 a.m. to 12 noon; that you block the time from FBS Network, Inc., the owner of the radio station, and pay it out of love offerings from those who believe that your program is able to bring the good news of salvation to a great number of people; that you have never carried and no plans of carrying a commercial ad in your radio broadcast because this could alter or color the purely religious and spiritual character of what you are doing; that recently, the FBS Network started to charge you the VAT; that you are a purely religious organization and do not operate for profit; and that the VAT cannot be intended to put you out of the air but this will happen unless you get your exemption since you are behind your normal obligations to the radio station. taxcd2005 In reply, please be informed that Section 105 of the Tax Code of 1997 provides that any person who, in the course of trade or business, sells, barters, exchanges, leases goods or properties, renders services, and any person who imports goods shall be subject to the value-added (VAT) imposed in Sections 106 to 108 of the same Code. The phrase "in the course of trade or business" means the regular conduct or pursuit of a commercial or an economic activity, including transactions incidental thereto, by any person regardless of whether or not the person engaged therein is a non-stock, non-profit private organization (irrespective of the disposition of its net income and whether or not it sells exclusively to members or their guests), or government entity. Accordingly, any person engaged in the sale of goods or services in the course of a business pursuit, including transactions incidental thereto, in general, shall also be liable to VAT. The tax exemption granted to non-stock, non-profit corporations under Section 30 of the Tax Code of 1997 covers only income taxes for which said corporations are directly liable. It should be noted that VAT is an indirect tax payable by the seller and not by the purchaser of goods. However, being an indirect tax, it can be shifted or passed on to the buyer/purchaser, transferee or lessee of the goods, properties or services. Once shifted to the buyer/customer as an addition to the cost of goods or services sold, it is no longer a tax but an additional cost which the buyer/customer has to pay in order to obtain the goods or services. cdtax2005 The shifting of the VAT to a tax-exempt corporation does not make it the person directly liable and therefore, said corporation cannot invoke its tax exemption privilege under Section 30 of the Tax Code of 1997 to avoid the passing on or shifting of the VAT. Hence, assuming that you are a non-stock, non-profit corporation exempt from tax under Section 30 of the Tax Code of 1997, your purchase of airtime from FBS Network, Inc. shall nevertheless be subject to the 10% VAT pursuant to Section 107 of the said Code. DHEcCT In view of the foregoing, your request is hereby denied for lack of legal basis. Very truly yours, (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group