BIR Ruling [DA-249-06]

April 12, 2006 BIR RULING [DA-249-06] Sections 109 (R) & 116 VAT Ruling No. 037-01 & VAT Ruling No. 078-02 Ayala Foundation, Inc. 10F BPI Building 6768 Ayala Avenue cor. Paseo de Roxas Makati City Attention: Ms. Wilma P. Zapata Chief Financial Officer Gentlemen : This refers to your letter dated February 28, 2006 requesting for a ruling that your sale of storybooks to the Department of Education's Library Hub Project is exempt from value-added tax. In reply, please be informed that Section 109(R) of the Tax Code of 1997, as amended by Republic Act No. 9337 provides, viz.: "SEC. 109. Exempt Transactions . (1) Subject to the provisions of Subsection (2) hereof, the following transactions shall be exempt from the value-added tax: (A) . . . xxx xxx xxx (R) Sale, importation, printing or publication books and any newspaper, magazine, review or bulletin which appears at regular intervals with fixed prices for subscription and sale and which is not devoted principally to the publication of paid advertisements and; . . ." Accordingly, Ayala Foundation, Inc. is exempt from VAT on its sale of storybooks. Moreover, both the 10% VAT and 3% percentage tax are taxes on the business transaction or activity. Both are indirect taxes which may be passed on or shifted to the customer who ultimately bears or assumes the burden of the tax. In VAT Ruling No. 037-2001 dated June 13, 2001, this Office had an occasion to rule that the 3% percentage tax prescribed under Section 116 of the Tax Code of 1997 does not apply to transactions exempt from the 10% VAT listed in Section 109(a) to (y) [now Section 109(A) to (V)] of the same Code as it applies only to transaction/s falling under item (z) [now (V)] of said section, to wit: "SEC. 109. Exempt Transactions . (1) Subject to the provisions of Subsection (2) hereof, the following transactions shall be exempt from the value-added tax: (A) . . . xxx xxx xxx (V) Sale or lease of goods or properties or the performance of services other than the transactions mentioned in the preceding paragraphs, the gross annual sales and/or receipts do not exceed the amount of One million five hundred thousand pesos (P1,500,000): . . . ." "SEC. 116. Tax on Persons Exempt from Value-added Tax (VAT) . Any Person whose sales or receipts are exempt under Section 109(z) of this 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. In view of the foregoing, Ayala Foundation, Inc. is likewise exempt from percentage tax on its sale of storybooks. 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. DIECTc Very truly yours, Commissioner of Internal Revenue By: (SGD.) PABLO M. BASTES, JR. OIC-Head Revenue Executive Assistant Legal Service