Tiburcio B. Aquino Memorial Hospital

July 9, 2010 BIR RULING [DA-(VAT-019) 119-10] Sections 30, 105 and 108; DA (VAT-004) 017-2010 dated January 28, 2010; BIR Ruling DA-249-05 dated June 9, 2005; VAT Ruling No. 056-02 dated September 12, 2002 Tiburcio B. Aquino Memorial Hospital Bialong National Highway, Kaimba, Sarangani Province Attention: Sr. Maxima C. Ramos Administrator Gentlemen : This refers to your letter dated November 9, 2009 requesting for a certification for Value-Added Tax (VAT) exemption to be issued to Tiburcio B. Aquino Memorial Hospital. It is represented that Tiburcio B. Aquino Memorial Hospital, located at Bialong Highway, Kiamba, Sarangani Province, is a primary hospital with a 16 bed capacity; that it is owned by the Sarangani Medical Foundation, Inc., a non-stock, non-profit institution; that Tiburcio B. Aquino Memorial Hospital is providing health care to Muslims, natives, as well as Christians in the province area; that it received a G.E. ultrasound, an equipment which is of vital importance to the hospital provisions of services and to Sarangani Province, since it is the only machine that can be availed of by the people of Kiamba, Maasim, Maitum and Palimbang; and that you now request that the acquisition of the G.E. ultrasound equipment be exempted from the payment of VAT. In reply, we regret to inform you that your request for tax exemption cannot be granted for lack of legal basis. AEScHa A corporation organized for charitable purposes as contemplated under Section 30 (E) of the Tax Code of 1997, as amended, is exempt from the payment of income tax on income received by it as such organization, and therefore, need not file an income tax return concerning such income. However, the tax exemption granted to it as a non-stock, non-profit corporation under Section 30 of the Tax Code of 1997 covers only income taxes for which it is directly liable. Section 105 of the Tax Code of 1997 provides that any person who, in the course of trade or business, sells, barters, exchanges, leases goods or properties, renders services, and any person who imports goods shall be subject to the value-added (VAT) imposed in Sections 106 to 108 of the same Code. The phrase "in the course of trade or business" means the regular conduct or pursuit of a commercial or an economic activity, including transactions incidental thereto, by any person regardless of whether or not the person engaged therein is a non-stock, non-profit private organization (irrespective of the disposition of its net income and whether or not it sells exclusively to members or their guests), or government entity. Accordingly, any person engaged in the sale of goods or services in the course of a business pursuit, including transactions incidental thereto, in general, shall also be liable to VAT. DEIHAa The tax exemption granted to corporations under Section 30 of the Tax Code of 1997 covers only income taxes for which said corporations are directly liable. It should be noted that VAT is an indirect tax payable by the seller and not by the purchaser of goods. However, being an indirect tax, it can be shifted or passed on to the buyer/purchaser, transferee or lessee of the goods, properties or services. Once shifted to the buyer/customer as an addition to the cost of goods or services sold, it is no longer a tax but an additional cost which the buyer/customer has to pay in order to obtain the goods or services (BIR Ruling DA-249-05 dated June 9, 2005). The seller of the G.E. ultrasound equipment is the one primarily liable to the payment of VAT but it can pass on to you the amount of tax as part of your purchases to the former. You cannot claim exemption from the VAT being passed on by your seller because VAT, being an indirect tax may be shifted or passed on to the buyer of goods and services, pursuant to Section 105 of the same Code. While Tiburcio B. Aquino Memorial Hospital is exempt from the payment of income tax on income received by it as a charitable organization under Section 30 (E) of the Code, its exemption only covers income taxes for which it is directly liable. The exemption does not cover the VAT passed on by the Hospital's VAT-registered suppliers. It is a well-settled principle in statutory construction that exemption from tax is strictly construed against the taxpayer and liberally in favor of the taxing authority. A taxpayer who claims an exemption must be able to justify by the clearest grant of organic or statute law its exemption from the payment of tax. An exemption from the common burden cannot be permitted to exist upon vague implication. (VAT Ruling No. 056-02 dated September 12, 2002) The shifting of the VAT to a tax-exempt organization does not make it the person directly liable and therefore, said organization cannot invoke its tax exemption privilege under Section 30 (E) of the Tax Code to avoid the passing on or shifting of the VAT. Hence, assuming that you are a charitable organization exempt from tax under Section 30 (E) of the Tax Code, your acquisition of G.E. ultrasound equipment shall nevertheless be subject to the 12% VAT pursuant to Section 108 of the said Code, as amended by Republic Act No. 9337. HIAcCD 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. Very truly yours, (SGD.) GREGORIO V. CABANTAC Deputy Commissioner