BIR Ruling No. 049-15

February 12, 2015 BIR RULING NO. 049-15 RA 10349; BIR Ruling No. 396-2014; BIR Ruling No. 397-2014; BIR Ruling No. 398-2014 Department of National Defense DND Building, Camp Gen. Emilio Aguinaldo Quezon City Attention: Voltaire T. Gazmin Secretary of National Defense Gentlemen : This refers to your letter dated January 9, 2015, requesting for the issuance of certificate of exemption from value-added tax (VAT) on the acquisition by the Armed Forces of the Philippines (AFP) from Audio Video Intelligence Corporation of Audio Video Equipment intended for the Philippine Army, as part of the AFP Modernization Program. The contract price for the acquisition of the aforesaid equipment is Eleven Million Five Hundred Thousand Pesos (PhP11,500,000.00). It is represented that the acquisition of the above equipment is exempt from value-added tax pursuant to Section 10 of Republic Act (RA) No. 10349, amending RA No. 7898. In reply, please be informed that Section 10 of RA 10349, amending RA No. 7898, provides: "SEC. 10. Insert three (3) sections after Section 16 of the same Act which shall now become the new Sections 17, 18 and 19 respectively, which shall read as: 'SEC. 17. Exemption from Value-Added Tax and Customs Duties. The sale of weapons, equipment and ammunitions to the AFP, which are directly and exclusively used for its projects, undertakings, activities and programs under the Revised AFP Modernization Act, shall be exempt from the value-added tax; Provided, That the importation of the same by the AFP shall likewise be exempt from the value-added tax and customs duties.' xxx xxx xxx" Based on the afore-quoted provision, the sale of weapons, equipment and ammunitions to the Armed Forces of the Philippines (AFP), which are directly and exclusively used for its projects, undertakings, activities and programs under the Revised AFP Modernization Act, shall be exempt from the value-added tax. In relation thereto, the Department of National Defense (DND) issued the Department Circular No. 3 (Issuing the Implementing Guidelines, Rules and Regulations of the Revised Armed Forces of the Philippines Modernization Act) dated April 11, 2013 which, among others, defined the term "equipment" as referring to "all non-expendable items needed to outfit or equip any individual and/or organizations and sub-organizations within the AFP". SHAcID Accordingly, the purchase by the AFP of Audio Video Equipment, which are non-expendable items needed to equip the Philippine Army, is exempt from value-added tax, provided that the aforesaid equipment shall be used directly and exclusively by the AFP for its projects, undertakings, activities and programs under the Revised AFP Modernization Act. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation it will be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner Bureau of Internal Revenue