Visayan Electric Co., Inc. Importation of Equipment, Machinery and Spare Parts, Including But Not Limited to All Apparatus and Appurtenances Necessary in the Conduct of Its Business, Exempt from the Value-Added Tax

April 14, 1997 BIR RULING NO. 046-97 R.A. 6454; 101;117 000-00 046-97 Alba Ledesma & Co. 7th Floor Don Chua Lamko Building H.V. dela Costa Street corner Alfaro Street Salcedo Village, Makati City Gentlemen : This refers to your letter dated July 12, 1996 requesting on behalf of your client, Visayan Electric Co., Inc. (VECO) for a ruling to confirm your opinion that its importation of equipment, machinery and spare parts, including but not limited to all apparatus and appurtenances necessary in the conduct of its business, is exempt from the value-added tax. cdti Documents submitted show that under Act No. 3499 approved on December 8, 1928, Visayan Electric Company, S.A., was granted a legislative franchise to install, operate and maintain an electric light, heat and power system in some municipalities of Cebu for a period of fifty (50) years; that on June 17, 1961, R.A. No. 3234 was enacted authorizing the sale, transfer and conveyance to the Visayan Electric Co., Inc. (VECO) of the franchise and all the properties and rights acquired thereunder by the Visayan Electric Co., S.A. granted under Act No. 3499; that Act No. 3499, as amended by R.A. No. 3234, was further amended by R.A. 6454 extending VECO's franchise for another twenty-five (25) years and providing in Section 2 thereof that "Sec. 2. The other provisions of Act numbered Thirty four hundred ninety-nine is amended insofar as they are inconsistent with the provisions of this amendatory Act. Provided, That the phrase "taxes of any kind" appearing in Section eight of Act Numbered Thirty-Four hundred ninety-nine shall include duties, tariffs, imposts, assessments, licenses and fees of whatever kind or nature which may be levied by any government authority whatsoever, now or in the future, upon its franchises, rights, privileges, earnings, incomes, payments, revenues, or profits, and upon its machineries, equipments, supplies, wattmeters, poles, wires, transformers, insulators, capacitors, transportation equipments and other facilities used or intended for use by the grantee including but not limited to, compensating taxes and other customs fees and assessments or licenses." It is clear from the aforequoted provisions of law that VECO's franchise under Act No. 3499 as transferred by R.A. No. 3234, exempts it from, among others, the compensating tax imposed under then Section 199 of the old Tax Code on its importation of equipment and other facilities used or intended for its use. However, the compensating tax on importation of goods for personal use was replaced by the value-added tax. Such being the case, VECO's exemption from the compensating tax on its importation of equipment, machinery and spare parts, including but not limited to all apparatus and appurtenances necessary in the conduct of its business should now be understood to mean exemption from the 10% value-added tax imposed under Section 101(a) of the Tax Code, as amended by R.A. No. 7716 and further amended by R.A. No. 8241. Moreover, VECOs receipts as an electric franchise grantee are exempt from the 10% value-added tax pursuant to Section 103(j) of the Tax Code, as amended and as implemented by Section 4.103-1(B) (j)-3 of Revenue Regulations No. 7-95, but subject to the 2% franchise tax imposed under Section 117 of the same Code. Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue