Withdrawal of the Duty and Tax Exemption Privileges of Lung Center of the Phil.

April 19, 1991 BIR RULING NO. 066-91 24 000-00 066-91 Gentlemen : This refers to your letter dated October 29, 1990 requesting a clearance from this Office which you will submit to the Fiscal Incentives Review Board (FIRB) in lieu of your latest income tax return relative to your pending request for the issuance of Certificate of Entitlement to Subsidy to cover payment of taxes and duties on your importations of medical equipment. cdti Documentary evidence submitted show that the Lung Center of the Philippines, Inc. is a government assisted and administered non-stock, non-profit corporation enjoying tax exemption privileges by virtue of P.D. No. 1823 which took effect January 16, 1981; that under Section 2, P.D. No. 1823, "all donations, contributions, endowments and equipment and supplies to be imported by authorized entities or persons and by the Board of Trustees of the Lung Center of the Philippines, Inc. for the actual use and benefit of the Lung Center, shall be exempt from income and gift taxes, the same further deductible in full for the purpose of determining the maximum deductible amount under Section 30, paragraph (b), of the National Internal Revenue Code, as amended; that it is exempt from the payment of taxes, charges and fees imposed by the Government or any political subdivision or instrumentality thereof with respect to equipment purchase made by, or for, the Lung Center"; that as represented, since its creation, the Lung Center never filed any income tax return invoking the provisions of P.D. No. 1823 and that upon the effectivity of E.O. 93, the Center ceased enjoying such privilege and as a result of which, the Lung Center failed provide in its 1990 budget the amounts due for the payment of Entitlement to Subsidy to cover these amounts and avail of tax deferment scheme to facilitate the release of your importation of equipment from the Bureau of Customs; and that one of the documents required by the Board prior to the issuance of this certificate is the presentation of your latest income tax return. In reply thereto, please be informed that under P.D. No. 1931, the tax exemptions and/or preferential tax treatment in favor of government-owned and controlled corporation, including their subsidiaries and all other units of government have been withdrawn effective June 11, 1984, P.D. No. 1931 removed the government subsidy feature of P.D. No. 1177 which allows the payment of taxes, duties and fees thru "Payment Compliance Certificate" in accordance with Joint Budget Circular No. 289 and pars, 4, 6 and 9, Finance Circular No. 2-78 implementing Sec. 23, P.D. No. 1177. In other words, under P.D. No. 1931, government units government-owned or controlled corporations are no longer entitled to tax subsidy or payments constituting equity contributions. Effective June 11, 1984. They are now required to pay cash or its equivalent. Consequently, the revenue collecting agencies will no longer issue a "Payment Compliance Certificate" but the corresponding revenue tax receipts for cash payments of taxes. (RMC No. 1-85 dated January 10, 1985) Such being the case, contrary to your opinion, the Lung Center of the Philippines tax exemption under Presidential Decree No. 1823 has been withdrawn by P.D. No. 1931 effective June 11, 1984, and not by E.O. No. 93 effective March 10, 1987. Accordingly, beginning June 11, 1984 you are already subject to internal revenue taxes, such as the compensating tax or the value-added tax (effective January 1, 1988) and customs duties on your importations of medical equipment. You are likewise required to file your annual income tax return. However, you are still exempt from the donor's gift tax on all donations, contributions and endowments in your favor pursuant to Section 94 (a) (2) and (b) (1) of the Tax Code as amended, the provisions of P.D. No. 1931 and E.O. No. 93 (effective March 10, 1987) notwithstanding. Be that as it may, it is to be noted that the withdrawal of the duty and tax exemption privileges of the Center would cause the dislocation of its financial structure thus jeopardizing its viability and operations as well as those of the noble projects it undertakes; hence, under the "Whereas" clause of Executive Order No. 93, assistance to government and private entities may be better provided where necessary, by explicit subsidy and budgetary support rather than tax and duty exemption privileges if only to improve the fiscal monitoring aspect of government operations. The Lung Center of the Philippines may therefore request for subsidy or budgetary support from the government to make up for the withdrawal of its tax exemptions in accordance with rules prescribed under Joint Circular No. 4-87 issued by the Department of Finance, Department of Budget and Management and Commission on Audit. Very truly yours, (SGD.) JOSE U. ONG Commissioner