BIR Ruling [DA-365-05]

August 25, 2005 BIR RULING [DA-365-05] Sections 109 (y) & 116 VAT Ruling No. 037-01 & VAT Ruling No. 078-02 Book Trends Enterprises 24A Mahusay St. U.P. Village, Diliman Quezon City Attention: Ms. Ma. Lourdes A. Reyes Proprietress Gentlemen : This refers to your letter dated June 1, 2005 requesting for a ruling that Book Trends Enterprises is exempt from value-added and percentage taxes. As represented, Book Trends Enterprises is a dealer of Filipiniana books. It is a single proprietorship and retailer and wholesaler of books. In reply, please be informed that Section 109(y) of the Tax Code of 1997, as amended, 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, Book Trends Enterprises is exempt from VAT on its sale of books. 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 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, to wit: "SEC. 109. Exempt Transactions . The following shall be exempt from the value-added tax: (a) ... xxx xxx xxx (z) 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 Five hundred fifty thousand pesos (P550,000):...." "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." cTCADI In view of the foregoing, Book Trends Enterprises is likewise exempt from percentage tax on its sale of books. 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. Very truly yours, (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group