BIR Ruling No. 031-13

January 22, 2013 BIR RULING NO. 031-13 Section 105, Tax Code of 1997, as amended; and Section 15 of Republic Act No. 7353; 000-000 Bridgeway Rural Banking Corporation Botolan Agora Complex, Barangay Batonlapoc, Botolan, Zambales Attention: Mr. Jerry S. Coloma III Chairman and President Gentlemen : This refers to your undated letter requesting for tax exemption on the bank's purchase of Hyundai Tucson as provided under Section 15 of Republic Act No. 7353 which reads as follows: EAISDH "Sec. 15. All rural banks created under its provisions and those already in operation as of the date of the approval thereof shall be exempt from the payment of all taxes, fees and charges of whatever nature and description, except the corporate income tax and local taxes, fees and charges, for a period of five (5) years from the date of commencement of operations." In reply thereto, please be informed that only the taxes that are relevant to the operations of a rural bank and taxes for which it is directly liable are covered by the aforesaid tax exemption clause. It should be noted that VAT is an indirect tax payable by the seller and not by the purchaser of goods. Being an indirect tax, it can be shifted or passed on to the buyer/purchaser, transferee or lessee of the goods, properties or services. Once shifted to the buyer/customer as an addition to the cost of goods or services sold, it is no longer a tax but an additional cost which the buyer/customer has to pay in order to obtain the goods or services. Accordingly, the VAT passed on to the bank's purchase of Hyundai Tucson becomes part of the contract price paid by the bank. Your request, therefore, is denied for lack of legal basis. For your guidance. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue