Sta. Clara International Corp.

November 25, 2008 BIR RULING [DA-(VAT-044) 462-08] Sec. 108; R.A. 7942 Sta. Clara International Corp. 97 E. De Los Santos Avenue, Makati City Attention: Mr. Ulysses M. Bautista Sr. Project Manager Gentlemen : This refers to your letter dated November 3, 2008 requesting for a clarification whether or not the services rendered by Sta. Clara International Corp. ("Sta. Clara" for brevity) in favor of Apex Mining Co., Inc., in constructing its tailings dam structure, an anti-pollution structure as contemplated under Section 91 Republic Act No. 7942, otherwise known as the "Philippine Mining Act of 1995", is exempt from the value-added tax (VAT) imposed under Section 108 of the Tax Code of 1997, as amended. TEHDIA The facts as represented are as follows: On December 5, 2007, Sta. Clara entered into a service contract with Apex Mining Co., designated as Maco TMF Construction Contract, for the construction of a tailings dam structure, an anti-pollution structure for the impounding of mine industrial wastes and tailings, among others. The said project has been recognized by the Mines & Geo-Sciences Bureau of the Department of Environment & Natural Resources (DENR) to be a pollution control and infrastructure device as contemplated under Section 3 (am) of R.A. 7942. Article 3.3 of the above construction contract provides that the consideration or contract price for the same shall be exclusive of VAT. Hence, you informed Apex Mining Co. that the billing will include the VAT. Apex Mining Co., however, advised you not to charge the VAT in the transaction arguing that the project is exempt from VAT as the said pollution control structure is exempt from taxes pursuant to Section 91 of R.A. 7942 which state as follows: "Section 91. Incentives for Pollution Control Devices . Pollution control devices acquired, constructed or installed by contractors shall not be considered as improvements on the land or building where they are placed, and shall not be subject to real property and other taxes or assessments: Provided, however, That payment of mine wastes and tailings fees is not exempted." It is your understanding, however, that the tax exemption referred to under Sec. 91 of R.A. 7942 pertains only to local taxes and it does not include national internal revenue taxes such as VAT, hence, this request for a clarification. In reply thereto, please be informed that a cursory reading of Sec. 91 of R.A. 7942 readily shows that the incentives therein granted refer only to real property tax and other taxes and assessments which are imposed by local government units pursuant to their taxing authority as laid down under R.A. 7160, otherwise known as the Local Government Code of 1991. The incentives granted to contractors of mineral agreements under Section 91 of R.A. 7942 are given by way of exception rather than a direct exemption from taxes. Thus, it is provided that pollution control devices installed by contractors of mineral agreements in relation to their mining operations are not considered as improvements on the land or building where they are placed thereby not subject to the real property tax and other taxes and assessments. The way the provision of Section 91 of R.A. 7942 has been worded is too plain and simple that it admits no ambiguity as to the meaning and intention it conveys: As constantly and uniformly held by this Office, "exemption from taxation is not favored and is never presumed, so that if granted it must be strictly construed against the taxpayer." Accordingly, and since the incentives granted under Section 91 of R.A. 7942 clearly pertain only to local taxes, this Office hereby renders its opinion that the construction contract executed by Sta. Clara with Apex Mining Co. for the construction of an anti-pollution device is subject to the 12% VAT imposed under Section 108 of the Tax Code of 1997, as amended, Sta. Clara, therefore, may charge the 12% VAT in its billing to Apex Mining Co. for the said construction service. DHETIS Please be guided accordingly. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service