BIR Ruling [DA-494-03]

December 10, 2003 BIR RULING [DA-494-03] Aboitiz One Aboitiz Transport Hangar, General Aviation Area Manila Domestic Airport Pasay City Attention: Mr. Noll Del Mundo AVP-Credit & Collection Gentlemen : This refers to your letter dated June 27, 2001, requesting for a ruling as to whether or not the following government entities with whom you have business dealings/transactions with are subject to VAT, viz : 1. Bangko Sentral ng Pilipinas 2. Lung Center of the Phils. 3. Dept. of Health 4. Phil. Amusement & Gaming Corp. 5. Philippine Postal Corporation 6. Dept. of Trade & Industry 7. National Statistical & Coordinating Board 8. National Statistical 9. Dept. of Science & Technology 10. Science Education Institute 11. Development Bank of the Phils. 12. Phil. National Bank 13. Phil. Health Insurance Corp. 14. Home Development Mutual Fund 15. Phil. Veterans Bank 16. Phil. Information Agency 17. Phil. Clearing House 18. Landbank of the Philippines Obviously, your invoice billings to the above-named government agencies on their purchases of goods/services include the 10% VAT but they are claiming exemption from VAT being passed on by you as part of the cost of the goods/services purchased. TSaEcH In reply, please be informed that the tax exemption privilege of those government agencies, if any, is limited only to taxes for which they are directly liable and does not embrace indirect taxes, e.g. VAT. Accordingly, your invoice billings on their purchases of goods and/or services which include the 10% VAT as part of the cost, is consistent with the provisions of Section 105 of the Tax Code of 1997 which provides that "(t)he value-added tax is an indirect tax and the amount of tax may be shifted or passed on to the buyer, transferee or lessee of the goods, properties or services . . . ." Once shifted to the customer as addition to the cost of goods sold, it is no longer a tax but an additional cost which the customer has to pay in order to obtain the goods . ( Philippine Acetylene Co. vs. Commissioner of Internal Revenue , G.R. No. L-19707, August 17, 1967) Very truly yours, (SGD.) JOSE MARIO C. BUAG Deputy Commissioner (Legal and Inspection Group)