BIR Ruling [DA-320-97]

September 25, 1997 BIR RULING [DA-320-97] Castro Tan & Carag Law Offices Suite 6B, Eisenhower Condominium No. 7 Eisenhower St., Greenhills San Juan, Metro Manila Attention: Atty. Othelo C. Carag Gentlemen : This refers to your letter dated April 18, 1997 stating that East Asia Utilities Corporation (formerly Mactan Power Corporation) , a corporation duly registered with the Philippine Economic Zone Authority (PEZA), operates a power plant inside the Special Economic Zone (Ecozone) in Mactan, Cebu; and that it purchases petroleum products from another PEZA-registered enterprise inside the Ecozone and from a Customs Territory enterprise, which petroleum products are used exclusively for its power plant. In connection therewith, you are requesting confirmation of your opinion that "1. The petroleum products manufactured and sold by a PEZA registered enterprise to East Asia Utilities Corporation are exempt from excise tax [Section 24 of the Special Economic Zone Act of 1995 (R.A. 7916) ("PEZA Law"); Section 1 (A) of Rule XIV of the Rules and Regulations to Implement Republic Act No. 7916, otherwise known as "The Special Economic Zone Act of 1995 ("PEZA Rules")]; and CAIaHS "2. The sale of petroleum products by a Custom Territory enterprise to East Asia Utilities Corporation is deemed as an export sale (BIR Ruling No. 046-95 dated 03 March 1995; VAT Ruling No. 203-90 dated 16 October, 1990; Sections 8, 23 and 51 of the PEZA Law; Article 77 (2) of the Omnibus Investments Code of 1987 (E.O. 227); Section 48 of the Rules and Regulations Implementing the Provisions Relative to the Subic Special Economic and Freeport Zone and the Subic Bay Metropolitan Authority under Republic Act No. 7227, otherwise known as the "Bases Conversion and Development Act of 1992" ("SBMA Rules"). Being an export sale, the same is entitled to a tax credit for the excise tax paid on the petroleum products pursuant to Section 127 (d) of the National Internal Revenue Code ("Tax Code")." In reply thereto, please be informed that your aforementioned opinions are hereby confirmed. (1) Section 24 of Republic Act No. 7916 otherwise known as "The Special Economic Zone Act of 1995" provides, viz: "SEC. 24. Exemption from Taxes under the National Internal Revenue Code. Any provision of existing laws, rules and regulations to the contrary notwithstanding, no taxes, local and national, shall be imposed on business establishments operating within the ECOZONE. In lieu of paying taxes, five percent (5%) of the gross income earned by all businesses and enterprises within the ECOZONE shall be remitted to the national government. This five percent (5%) shall be shared and distributed as follows: (a) Three percent (3%) to the national government; (b) One percent (1%) to the local government units affected by the declaration of the ECOZONE in proportion to population, land area and equal sharing factors; and (c) One percent (1%) for the establishment of a development fund to be utilized for the development of municipalities outside and contiguous to each ECOZONE; Provided, however, that the respective share of the affected local government units shall be determined on the basis of the foregoing formula: CDAHaE (1) Population fifty percent (50%) (2) Land Area twenty-five percent (25%) (3) Equal Sharing twenty-five percent (25%)" Such being the case, petroleum products manufactured and sold by a PEZA registered enterprise to East Asia Utilities Corporation are exempt from excise tax. Said tax exemption privilege, however, exempts registered enterprises only from their direct tax liability, or taxes for which they would otherwise be liable, if it were not for their tax exemption privilege. It does not include exemption from indirect tax, i.e., VAT on their purchase of goods or services, which is the direct liability of the seller. (BIR Ruling No. 70-97 dated June 9, 1997) HCIaDT (2) The sale of petroleum products by a Customs Territory enterprise to East Asia Utilities Corporation shall be considered as an export sale. (BIR Ruling No. 046-95 dated March 3, 1995; VAT Ruling No. 203-90 dated October 16, 1990) Accordingly, the excise tax paid on the petroleum products may be credited or refunded pursuant to Section 127 (d) of the Tax Code, as amended. 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. aEHTSc Very truly yours, (SGD.) LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue