PAGCOR Not Exempt from Payment of 10% VAT Passed on to It for the Sale of Telecommunications Services

June 29, 1998 BIR RULING NO. 105-98 102-000-00-105-98 Philippine Long Distance Telephone Company P.O. Box No. 2148 Cable Address Fones Makati City Attention: Mr . Paulino A . Caoili Division Head - Finance Accounting Gentlemen : This refers to your letter dated March 26, 1997 requesting confirmation of the opinion of the Office of the President dated August 29, 1995 and the opinion of the Office of the Solicitor General dated January 25, 1996 to the effect that the Philippine Amusement and Gaming Corporation (PAGCOR) is exempt from the payment of the 10% VAT being passed on to it by you for the sale of telecommunications services under Section 13 of P.D. No. 1869 otherwise known as the Charter of PAGCOR. llcd In reply thereto, please be informed that Executive Order No. 93 dated March 10, 1987 withdrawing all tax and duty incentives granted to government and private entities had the effect of withdrawing PAGCOR's exemption from tax under Section 13 of P.D. No. 1869 otherwise known as the Charter of PAGCOR. Section 4.102(f) of Revenue Regulations No. 7-95 provides that franchise grantees of telephone and telegraph shall be subject to VAT on their gross receipts derived from their telephone, telegraph, telewriter exchange, wireless and other communication equipment services. The 10% VAT for the sale of telecommunications services is the direct liability of PLDT. However, since VAT is an indirect tax, the amount of the tax may be shifted or passed on to the buyer of goods, properties or services. (Section 99, Tax Code, as amended) Once shifted, it is no longer a tax, but an additional cost which PAGCOR has to pay to you for your sale of telecommunications services. prLL Very truly yours, (SGD.) LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue