Income Tax Exemption of Garments and Textile Export Board

May 13, 1999 BIR RULING NO. 067-99 067-99 Honorable Nelly Favis-Villafuerte Undersecretary, Department of Trade & Industry Trade and Industry Building 361 (Buendia) Sen. Gil J. Puyat Avenue Makati City 3117 Dear Undersecretary Villafuerte : This refers to your letter dated April 28, 1999 concerning your request for the reconsideration of the action taken by our Revenue District Office (RDO) No. 49, North Makati, which held that the GARMENTS AND TEXTILE EXPORT BOARD (GTEB) shall be liable to corporate income tax, effective January 1, 1998, pursuant to Section 27(C) of the National Internal Revenue Code of 1997, since, in general, all government-owned and controlled corporations shall be subject to corporate income tax except only the GSIS, SSS, PHIC, PCSO and the PAGCOR, as follows: " Government-owned or Controlled Corporations, Agencies and Instrumentalities . The provisions of existing special or general laws to the contrary notwithstanding, all corporations, agencies or instrumentalities owned or controlled by the Government, except Government Service Insurance System (GSIS), the Social Security System (SSS), the Philippine Health Insurance Corporation (PHIC), the Philippine Charity Sweepstakes Office (PCSO) and the Philippine Amusement and Gaming Corporation (PAGCOR), shall pay such rate of tax upon their taxable income as are imposed by this Section upon corporations or associations engaged in a similar business, industry or activity." It is your contention, however, that the GTEB is a government regulatory body; that it does not perform any business similar to a government-owned or controlled corporation; that it does not exercise proprietary function like other agencies of the government; and that it is performing strictly governmental functions. Our verification also disclosed that the GTEB has been created and organized pursuant to the provisions of P.D. No. 1440, promulgated on June 10, 1978, the pertinent portion of which provides: "SEC. 1. Garments and Textile Export Board . There is hereby created a Garment and Textile Export Board hereinafter referred to as the Board to be composed of the representative of the Secretary of Trade, as Chairman, the representative of the Department of Industry as Vice-Chairman, and one representative each from the Department of Finance, the Board of Investments, the Central Bank of the Philippines, the Tariff Commission and Export Processing Zone Authority as Members. The President shall designate one representative from the private sector as a Member of the Board without voting rights. "The Textile Export Board established under Letter of Instructions No. 325 and the Garments and Textile Export Office established under Letter of Instruction No. 676 are hereby abolished and their powers and functions as well as records and documents are hereby transferred to the Garments and Textile Export Board herein established. "The Board shall be under the Office of the President. "SEC. 2. Powers and Functions of the Board . The Board shall have in addition to its general powers of administration the following powers and functions: "a. To oversee the implementation of the garments and textile agreements between the Republic of the Philippines and other countries, particularly the administration of garments and textile quotas; "b. To approve quota allocations, and export authorizations, to issue export licenses and to adopt the necessary measures to expedite the processing of the same; "c. To provide on a regular basis the necessary information and statistics relating to the administration of garments and textile quotas and the flow of garments and textile exports, for monitoring purposes and in order to obtain maximum benefits from textile negotiations with other countries; "d. To promulgate, subject to the prior approval of the National Economic and Development Authority, and implement, all rules and regulations to carry out all international textile agreements entered into between the Republic of the Philippines and importing countries; "e. To fix and collect reasonable fees for the issuances of export quotas, export authorizations, export licenses and other related services, in accordance with the criteria specified in the rules and regulations." In reply, please be informed that the aforequoted provisions of Section 27(C) of the NIRC of 1997, notwithstanding, Section 32(B)(7)(b) thereof also further provides that the following shall be exempt from corporate income tax: "(B) Exclusions from Gross Income . The following items shall not be included in gross income and shall be exempt from taxation under this Title: "xxx xxx xxx. "(b) Income Derived by the Government or its Political Subdivisions . Income derived from any public utility or from the exercise of any essential governmental function accruing to the Government of the Philippines or to any political subdivision thereof." "xxx xxx xxx." In view of the foregoing, please be informed that since the GTEB is an agency under the Office of The President and performing only purely governmental function, its revenue as such is exempt from income tax, pursuant to the provisions of Section 32(B)(7)(b) of the NIRC of the 1997. LLjur Very truly yours, (SGD.) BEETHOVEN L. RUALO Commissioner of Internal Revenue