Lightquest Publications, Inc.

March 3, 2009 BIR RULING [DA-(VAT-029) 132-09] Lightquest Publications, Inc. National Highway, Brgy. Paciano Rizal Calamba City Attention: Mr. Eugenio C. Agapay President Gentlemen : This refers to your letter dated December 19, 2008 requesting for the issuance of a Certificate of Exemption from value-added tax (VAT) and percentage tax. CaEIST Documents show that Lightquest Publications, Inc., with Tax Identification No. 239-912-423-000, is a domestic corporation registered with the National Book Development Board under Certificate of Registration No. 0875 and the Securities and Exchange Commission (SEC) under SEC Registration No. CS200510385 issued on June 15, 2005, respectively. Its primary purpose is "to carry on business as proprietors and publishers of newspapers, journals, magazines, books and other literary works and undertakings, and to carry on business as printers, books seller, book binders, paper makers, stationeries, engraver, photographers, photographic printers, stereotypers, electrotypers, lithrographers, machinists, silkscreeners, or any other business or manufacturer that may be expedient." 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, Lightquest Publications, Inc. is exempt from VAT on its sale, printing or publication of newspapers, journals, magazines, books and other literary works. Consequently, its sale of the said newspapers, journals, magazines, books and other literary works to government agencies, local government units, non-government organizations, private clubs, foundations and associations, is not subject to the 5% creditable VAT required under Section 114 (C) of the Tax Code of 1997, as amended. Neither will Lightquest Publications, Inc. 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 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 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 10% 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, Lightquest Publications, Inc.'s other transactions i.e. , printer, book binder, paper maker, stationeries, engraver, photographers, photographic printers, stereotypers, electrotypers, lithographers, machinists, silkscreeners, are subject to the VAT and will require it to register as a VAT business entity and issue a separate VAT invoice/receipt to record such transactions. AEDHST 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%. 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 (1%) creditable withholding tax. The tax is also computed by multiplying the income payment by 1%. 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. 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. ECDAcS Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service