Taxpayers Not Liable to VAT and Common Carrier's tax on Sale of Services to Clients Cannot Pass on or Shift Payment of Indirect Tax Like VAT and Common Carrier's Tax for Which They are Not Liable

February 4, 1997 BIR RULING NO. 015-97 R.A. 7227 000-00 015-97 Vivere Isles Leisure Corporation Suite 1211, Cityland 10 Tower 1 Condominium H.V. de la Costa Street corner Ayala Avenue, Makati City Attention: Ms . Ma . Victoria Torres Vice President for Finance Gentlemen : This refers to your letter dated August 21, 1995 stating that your are engaged in the Air Charter Services business; that you were issued Certificate of Tax Exemption No. 95-12 on May 17, 1995 by the Clark Development Corporation, as a duly registered Clark Special Economic Zone enterprise; that as such, you are entitled to tax and duty-free importation of capital goods, equipment, raw materials, and supplies, household and personal items; that you are exempt from local and national taxes including but not limited to withholding income taxes and value-added taxes (VAT) pursuant to Section 15 of Republic Act No. 7227 and Section 5 of Executive Order No. 80. cdt Based on the foregoing, you are now requesting for opinion as to whether you can charge your clients the VAT or the Air Carrier's Tax or both. In reply thereto, please be informed that Section 5 of Executive Order No. 80 authorizing the establishment of the Clark Development Corporation (CDC) as the implementing arm of the Bases Conversion and Development Authority (BCDA) for Clark Special Economic Zone (CSEZ) provides that the CSEZ shall have all the applicable incentives in the Subic Special Economic and Free Port Zone under R.A. 7227 and those applicable incentives granted in the Export Processing Zones, the Omnibus Investments Code of 1987, the Foreign Investments Act of 1991 and new investments laws which may hereinafter be enacted. Section 12 (c) of R.A. No. 7227, otherwise known as the Bases Conversion and Development Act of 1992, provides that registered enterprises within the Secured Area of the Zone as defined in Executive Order No. 97 dated June 19, 1993 shall, in lieu of local and national taxes, be liable to the payment of the following, based on gross income earned: (1) To the National Government 3% (2) To the Local Government Units affected by declaration of the Zone; 1% (3) To the Special Development Fund to be utilized for the development of municipalities outside the City of Olongapo and the municipality of Subic and other municipalities contiguous to the base areas. 1% As a duly registered CSEZ enterprise, you are liable to the payment of the preferential tax rate of 3%,plus the amounts equivalent to 1% and 1% respectively, for the Local Government Units and Special Development Fund, as aforequoted, based on your gross income earned, in lieu of local and national internal revenue taxes. Such being the case, and since you are not liable to VAT under Section 102 and to the common carrier's tax under Section 115 both of the Tax Code, as amended, on your sale of services to your clients, you can not pass on or shift to your clients, the payment of an indirect tax like VAT and common carrier's tax for which you are not liable. Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue