Limited Coverage of Electric Cooperatives' VAT Exemption

March 6, 1998 BIR RULING NO. 027-98 99; 103 (s)-000-00-027-98 National Electrification Administration 1050 CDC Building, Quezon Avenue Quezon City, Metro Manila Attention: Director Eduardo R . Lacson Materials Management Department Gentlemen : This refers to your letter dated November 12, 1997, requesting clarification as to whether or not electric cooperatives, including existing electric cooperatives registered with the National Electrification Administration (NEA) under P.D. No. 269 which fail or opt not to register with the Cooperative Development Authority (CDA) pursuant to R.A. No. 6938, is exempt from VAT on their local purchases of machineries, equipment, including spare parts, which shall be used in the generation of electricity. In reply, please be informed that the exemption from VAT of electric cooperatives duly registered with the CDA or NEA under Section 107 (s) of the Tax Code of 1997 covers only their sales of electricity and importation of machineries and equipment, including spare parts thereof, which shall be used in the generation and distribution of electricity. However, the local purchases by electric cooperatives of machineries, equipment and spare parts shall be subject to VAT even if the same are to be used in the generation of electricity. This is so, because VAT is an indirect tax and the amount of tax may be shifted or passed on to the buyer, transferee or lessee of the goods, properties or services. (Section 105, Tax Code.) Accordingly, electric cooperatives should pay the 10% VAT being passed on by the local suppliers on the former's purchases of machineries and equipment. prcd Very truly yours, (SGD.) LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue