BIR Ruling [DA-327-97]

September 29, 1997 BIR RULING [DA-327-97] Mr. Donald Z. Marasigan Technical Staff Chief Committee on Ways and Means House of Representatives Quezon City S i r : This refers to your request for comments and views on House Bill No. 8057 entitled 'An Act Granting to Starcraft Corporation a Franchise to Establish, Operate and Maintain Ferry Transport Services for Carriage of Passengers, Mails, Goods and Freight Along the Pasig River, In and Between Any All Places Throughout Metro Manila and its Environs,' particularly Section 10 thereof, viz: "SEC. 10. Taxes and Licenses. The grantee shall pay to the Government during the life of this franchise, a franchise tax of FIVE PERCENT (5%) of all gross revenue derived by the grantee from its transport operations. The grantee shall, however, be subject to income tax levied under Title II of the National Internal Revenue Code, as amended, and tax on its real property under existing laws on revenues and from activities other than its transport operations." It is noted that the main reasons for the proposed legislative grant of this franchise to Starcraft Corporation to operate ferry service in Pasig River traversing the cities and municipalities in the Metropolitan Manila areas are the following: 1. There is an urgent need for an alternative route and system of mass transportation free from the pollution and traffic in the city streets. 2. Being a multi-million peso project which is commercially difficult to set up and definitely capital intensive, Starcraft Corporation as a pioneering entity deserves no less than an exclusive franchise and tax incentives in order to recoup its investment and sustain its operation of this developmental endeavor. 3. With the ongoing rehabilitation of the Pasig River, the Piso for every passenger carried by a ferry boat, intended to be contributed by Starcraft Corporation to the "Piso Para sa Pasig" Trust Fund, will hasten the restoration of the Pasig river to its former grandeur. We believe that these purposes alone are indeed more than valid reasons to grant a franchise to Starcraft Corporation. But considering that franchise grantees, other than those provided under Section 117 of the Tax Code, as amended, are now subject to VAT, the proposal of imposing on said corporation an automatic franchise tax of five percent (5%) would run counter with the provision of Section 102 (a) of the Tax Code, subjecting "other franchise grantees" to 10% VAT on the sale of services (in this instant case, services on the transport of goods and cargoes). However, a provision to the effect that, insofar as transport of passengers is concerned, the said tax should be lowered to three percent (3%) to make it on equal footing with the percentage tax imposed on the transport of passengers by "domestic common carriers" under Section 115 of the Tax Code, as amended, should be provided, in line with the equality and uniformity rule of taxation. Very truly yours, (SGD.) LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue