Request for Tax Exemption of Construction Materials/Equipment that Contractor is Utilizing for the Construction of the Halfway Home Inside the New Bilibid Prison Reservation in Muntinlupa City

April 14, 1997 BIR RULING NO. 045-97 Secretary Teofisto T. Guingona Department of Justice Manila S i r : This refers to your letter dated January 14, 1997 regarding the request for tax exemption of the construction materials/equipment that the contractor is utilizing for the construction of the Halfway Home inside the New Bilibid Prison Reservation in Muntinlupa City. It is represented that the President of Nagoya West Lions Club (NWLC) of Japan, Shinji Kayamori, is requesting for the above-stated tax exemption in favor of Overseas Construction Company (OOCC), the contractor, a Japanese form based in Manila, at a cost of US$254,000.00; that the facility will rise on a 1,000 square meter lot within the Minimum Security Camp of the reservation; that upon its completion in March 1997, the facility will be donated by the NWLC to the Department of Justice (DOJ) and the Asia Crime Prevention Philippines, Inc. (ACPPI) upon whose request and initiative the NWLC has agreed to fund the construction at the behest of the Asia Crime Prevention Foundation of Japan; that the said project is aimed at the social rehabilitation of pre-released male prisoners, newly granted parolees or pardonees and probationers (clientele groups) who are faced with the problem of adjusting to family and community life; that it is a joint project of the DOJ and the ACPPI with the participation of the Bureau of Corrections, Parole and Probation Administration, Bureau of Jail Management and Penology Administration, Board of pardons and Parole, Makati and Muntinlupa Lions Club, National Police Commission and the Technical Panel on Crime Prevention and Criminal Justice of the NAPOLCOM. In reply, please be informed that the purchase and/or importation of construction materials/equipment being utilized by the OOCC in the aforesaid construction project is not included in the transactions exempt from the payment of the value-added tax (VAT) under Sections 103 of the Tax Code, as last amended by Republic Act No. 8241. Thus, OOCC, being the contractor-buyer of the subject construction materials and/or equipment may be liable thereto. Paragraph 2 of Sec. 99 of the Tax Code, as amended, provides as follows: The value-added tax is an indirect tax and the amount of tax may be shifted or passed on to the buyer, transferee lessee of the goods, properties or services . . ." (Emphasis supplied) However, after completion of the said construction project and the same had been turned-over to the NWLC for purposes of donating it to the DOJ and the ACCPI, the said donation shall be exempt from the donor's tax as provided for under Sec. 94(b)(1) of the Tax Code, as amended, viz: "SEC. 94. Exemption of certain gifts . . . (b) In the case of gifts made by a nonresident not a citizen of the Philippines: (1) Gifts made to or for the use of the National Government or any entity created by any of its agencies which is not conducted for profit, or to any political subdivision of the said Government ." (Emphasis supplied.) In view thereof, this Office is of the opinion, as it hereby holds that the purchase or importation of construction materials and equipment by Ohsaki Overseas Construction Company for the construction of Halfway Home inside the New Bilibid Prison Reservation in Muntinlupa City is subject to the value-added tax. The intended donation, however, of the said project after its completion to the DOJ and the ACPPI shall be exempt from the donor's tax pursuant to Sec. 94(B)(1) of the Tax Code, as amended. Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue