Gabay Eskwela Publishing House

February 25, 2009 BIR RULING [DA-(VAT-027) 119-09] Section 109 (R); BIR Ruling No. DA-107-06 Gabay Eskwela Publishing House Unit 17 Gen. T. de Leon Commercial Complex Karuhatan Road, Karuhatan Valenzuela, Metro Manila Attention: Ms. Yolanda A. de Leon Proprietress Gentlemen : This refers to your letter dated December 11, 2008 requesting for confirmation of your opinion that Gabay Eskwela Publishing House (GEPH) is exempt from value-added tax (VAT). HIEASa Documents show that GEPH is owned by Yolanda Aguilar de Leon with Tax Identification No. 138-610-144-000. It is a publishing house engaged in publishing of educational textbooks, workbooks and supplementary reading materials. It is registered with the Department of Trade and Industry under DTI Certificate No. 00148546 dated June 2, 2006. In reply, please be informed that Section 109 (R) [then Section 109 (y)] of the Tax Code of 1997 as amended by Republic Act No. 9337 provides, viz. : "SEC. 109. Exempt Transactions. The following shall be exempt from the value-added tax: xxx xxx xxx (R) 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, GEPH is exempt from VAT on its sale, printing or publication of educational textbooks, workbooks and supplementary reading materials. Consequently, its sale of the said books to government entities is not subject to the 5% withholding VAT required under Section 114 (C) of the Tax Code of 1997, as amended. Neither will GEPH be required to pay the 3% percentage tax under Section 116, in relation to Section 109 (V) [then Section 109 (z)] of the Tax Code of 1997 as amended by R.A. No. 9337, since both the 12% 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 the 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 12% VAT listed in Section 109 (a) to (y) [now Section 109 (A) to (V)] of the Tax Code of 1997, as it applies only to transaction/s falling under item (z) [now (V)] of said section. However, if GEPH has other transactions (such as the printing of brochures) which are subject to the VAT, it will also be required to register its business as a VAT business entity and issue a separate VAT invoice/receipt to record such transactions. Pursuant to Section 2.57.2 (E) (3) (f) of Revenue Regulations (Rev. Regs.) No. 6-2001, as amended, a creditable income tax at the rate of 2% shall be withheld on income payments to printers, bookbinders, lithographers and publishers except those principally engaged in the publication or printing of any newspaper, magazine, review or bulletin which appears at regular intervals, with fixed prices for subscription and sale. The tax is computed by multiplying the income payment by 2%. AcISTE Under Section 2.57.2 (M) of Rev. Regs. No. 2-98 as amended by Rev. Regs. No. 17-2003, a creditable income tax at the rate of 1% shall be withheld on income payments made by the top ten thousand (10,000) private corporations to their local/resident supplier of goods including non-resident alien engaged in trade or business in the Philippines with whom they regularly make purchases of goods. Under the same Section, however, one single purchase which involves PhP10,000.00 or more shall be subject to a withholding tax. The tax is computed by multiplying the income payment by 1%. Likewise, Section 2.57.2 (N) of Rev. Regs. No. 6-2001, as amended, provides that income payments, except any single purchase which is P10,000.00 and below, which are made by a government office, national or local, including government-owned or controlled corporations, on their purchases of goods from local suppliers are subject to the one * percent (2%) creditable withholding tax. The tax is also computed by multiplying the income payment by 2%. Accordingly, your customers shall withhold a creditable income tax from income payments to your company at the rate of either 1% and/or 2% depending on the class of payee they belong to. ICTHDE 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.) JAMES H. ROLDAN Assistant Commissioner Legal Service