BIR Ruling [DA-489-04]

September 10, 2004 BIR RULING [DA-489-04] RR 31-2003; 133-85 AFP Commissary & Exchange Service Camp General Emilio Aguinaldo Quezon City Attention: Mr. Preciliano M. Ruiz Capt. PN(GSC) Commander & General Manager Gentlemen : This refers to your undated letter which was received by this Division on June 5, 2004 requesting for a ruling on the following, viz: 1. The applicability of tax subsidy allocation in your operation, specifically, in the purchase of goods from suppliers for resale at your stores/outlets; 2. The non-acceptance of the Tax Compliance Certificates (TCCs) by suppliers; and 3. The duration of time to which said TCCs could be applied. It is represented that your tax subsidy allocation was provided by the National Government under Section 15 of the General Appropriations Act for FY 2004; that presently, there are several suppliers, especially in the provincial areas, that still refuse to accept the Tax Compliance Certificates (TCCs) as part of payment of goods purchased from them by AFPCES; that such action defeats the purpose of extending tax subsidized goods to your authorized customers in the area; that in this connection, you would like to seek our assistance to provide you with a ruling, opinion and/or legal basis on the non-acceptance of TCCs by suppliers and likewise, the duration of time within which TCC could be applied; that you have presented Resolution No. 3-04 of the Fiscal Incentives Review Board of the Department of Finance dated March 19, 2004, stating that the application for subsidy availment of the AFPCES in the amount of P156,106,640, representing taxes on items purchased and subsequently sold by its outlets to their intended beneficiaries only for the year 2004, in accordance with the following breakdown: Coverage Amount (Pesos) Ratio to Total VAT on purchases P122,157,040 78% Excise tax on petroleum products 11,182,400 7% Excise tax on alcohol and beverages 7,327,200 5% Excise tax on cigarettes 6,400,000 4% VAT (output) 9,040,000 6% Total 156,106,640 100.00% ========== ======= was approved, Provided, however, that the approval is without prejudice to further application for tax subsidy by the AFPCES: Provided further, that the AFPCES shall: (1) submit to the FIRB the progress reports on the results of its programs to turn around its operations; (2) formulate a system by which commissary privileges would be confined solely to intended beneficiaries and monitor the amount of purchases made by said beneficiaries to conform with the prescribed limits; (3) submit itself to an annual audit by the Commission on Audit; (4) cause to be marked on all items entitled to tax subsidy herein granted the words "Tax Subsidized by the FIRB"; (5) submit the prices of commodities sold by its outlets; and (6) submit a breakdown of its sales by outlet: Provided furthermore, that such availment shall be in accordance with the terms and conditions of Section 13 of the 2003 General Appropriations Act, as reenacted, subject to the availability of funds therefor, pursuant to the terms and conditions of the Rules and Regulations to Implement the Subsidy Provision under Executive Order No. 93 and Bureau of Internal Revenue Regulations No. 31-3001 and that a Certificate of Entitlement to Subsidy has been issued in your favor stating the following, viz: Type of Subsidy Scope Period of Effectivity Tax subsidy in the amount Taxes on items purchased Valid until December 15, of P156,106,640.00 only and subsequently sold by its 2004 chargeable against Section outlets to their intended 13 of the 2003 General beneficiaries only, for the Appropriations Act, as year 2004. reenacted. In reply, please be informed that under the provision of Section 23, P.D. 1177, as implemented by Budget Circular No. 289 and Finance Circular No. 2-78, all units of government, including government-owned or controlled corporations, are subject to all forms of taxes, thus the AFP Commissary & Exchange Service, in effect, lost its tax exemption benefit and became liable for the taxes on its purchases. Nevertheless, instead of paying cash, AFP Commissary & Exchange Service secured a Tax Compliance Certificate from the Department of Finance as provided in the aforesaid Budget and Finance Circulars. (BIR Ruling No. 133-85 dated August 22, 1985) Thus, this Office is of the opinion and so holds that the issuance of the Certificate of Entitlement to Subsidy in favor of Armed Forces of the Philippines Commissary and Exchange Service covering items purchased and subsequently sold by its outlets to their intended beneficiaries only, for the year 2004 is equivalent to payment of the taxes due on its purchases. Accordingly, AFPCES may use the said TCCs as payment for items purchased and subsequently sold by its outlets to their intended beneficiaries but only until December 14, 2004. ECISAD The suppliers of AFPCES however, may utilize the said TCCs within five (5) years from receipt thereof pursuant to Section 5 of Revenue Regulations No. 5-2000, considering that a tax compliance certificate is likewise a certification issued to the taxpayer entitling the latter the money value which may be used in payment or in satisfaction of any of his internal revenue tax liability (except those excluded). This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it shall be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal and Inspection Group