BIR Ruling [DA-284-06]

April 26, 2006 BIR RULING [DA-284-06] Section 109 (y); VAT Ruling No. 055-02 Mr. Dominador D. Buhain 84-86 P. Florentino Street Sta. Mesa Heights, Quezon City Gentlemen : This refers to your letter dated March 24, 2005 requesting for a ruling on the following: 1) Whether the sale of books is exempt from value-added tax (VAT); 2) What taxes are due on the sale of books published and printed by your company; 3) How to compute for the taxes. In reply, please be informed that Section 109 (y) of the Tax Code of 1997 as amended by Republic Act No. 9337 provides, viz: "SEC. 109. Exempt Transactions . The following shall be exempt from the value-added tax: xxx xxx xxx (y) Sale, importation, printing or publication of 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 . . ." Accordingly, Rex Crown Publications, Inc. is exempt from VAT on its sale, printing or publication of books. Consequently, its sale of books to local government units, whether provincial, city or municipal, is not subject to the 3% creditable VAT required under Section 114 (C) of the Tax Code of 1997. Neither will you be required to pay the 3% percentage tax under Section 116, in relation to Section 109 (z) of the same Code since 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 the 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) of the same Code as it applies only to transaction/s falling under item (z) of said section. However, if you have other transactions (such as the printing of brochures) which are subject to the VAT and your gross annual sales and/or receipts exceed the amount of PhP1,500.00, you will also be required to register your business as a VAT business entity and issue a separate VAT invoice/receipt to record such transactions (Revenue Memorandum Circular No. 62-2005). Moreover, pursuant to Section 2.57.2 (E) (3) (f) of Revenue Regulations (Rev. Regs.) No. 6-2001, as amended, a creditable income tax at the rate of 2% shall be withheld on income payments to printers, bookbinders, lithographers and publishers except those principally engaged in the publication or printing of any newspaper, magazine, review or bulletin which appears at regular intervals, with fixed prices for subscription and sale. The tax is computed by multiplying the income payment by 2%. Likewise, Section 2.57.2 (N) of Rev. Regs. No. 6-2001, as amended, provides that income payments, except any single purchase which is P10,000.00 and below, which are made by a government office, national or local, including government-owned or controlled corporations, on their purchases of goods from local suppliers are subject to the one percent (1%) creditable withholding tax. The tax is also computed by multiplying the income payment by 1%. Please be guided accordingly. Very truly yours, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service