Whether the Importation of Radio Equipment, Machinery and Spare Parts Including but Not Limited to Cellular Phones Necessary in the Conduct of Your Business is Exempt from Value-Added Tax

July 24, 1995 BIR RULING NO. 110-95 24; 101 (a) 000-00 110-95 Pilipino Telephone Corporation 11th Floor Doa Narcisa Building 8751 Paseo de Roxas Makati, Metro Manila Gentlemen : This refers to BIR Ruling No. UN-035-95 dated February 3, 1994, stating that your importation of radio equipment, machinery and spare parts including but not limited to cellular phones necessary in the conduct of your business is exempt from value-added tax. cdta It appears that said ruling was issued based on your representation that you are a grantee of a legislative franchise under Republic Act No. 6030, as amended by Republic Act No. 6531, as further amended by Republic Act No. 7293 approved on March 27, 1992, to install, operate and maintain telecommunications systems and services in and between provinces, cities and municipalities throughout the Philippines and between the Philippines and other countries and territories. (Sec. 1, R.A. No. 7293) In connection therewith, please be informed that after a restudy of the aforesaid ruling, this Office finds the same to be devoid of legal basis, insofar as it exempts from the value-added tax your importations of radio equipment, machinery and spare parts including but not limited to cellular phones necessary in the conduct of your business. Pertinent portion of your legislative franchise, R.A. No. 7293, is quoted hereunder as follows: Section 6. Tax Provisions . The grantee shall be liable to pay the same taxes on its real estate, buildings and personal property exclusive of this franchise as other persons or corporations are now or hereafter may be required by law to pay. In addition thereto, the grantee shall pay to the Bureau of Internal Revenue each year within thirty (30) days after the audit and approval of the accounts, three per centum (3%) of all gross receipts of the telephone or other telecommunications business transacted under this franchise by the grantee, and the said percentage shall be in lieu of all taxes on this franchise or earnings thereo f: Provided, That the grantee shall continue to be liable for income taxes payable under Title II of the National Internal Revenue Code, pursuant to Section 2 of Executive Order No. 72, unless the latter enactment is amended or repealed in which case the amendment or repeal shall be applicable thereto. (Emphasis supplied) Based on the aforequoted provision of your Charter/Franchise, this Office reiterates that you are subject to the following taxes, to wit: 1. Taxes on its real estates, buildings and personal property as other persons or corporations are now or hereafter may be required to pay; 2. 35% corporate income tax as provided for under Section 24(a) of the Tax Code, as amended; 3. 20% final withholding tax (FWT) on interest income derived from Philippine currency bank deposits and yield or any other monetary benefit from deposit substitutes, trust funds and similar arrangements, and royalties derived from sources within the Philippines. [Section 24(e)(1), NIRC]; cdll 4. Creditable expanded withholding tax (EWT) on sales, exchanges or transfers of real properties (whether classified as ordinary or capital asset) by Piltel consummated on or after January 1, 1990 (RMO 7-90, RR 1-90, as amended by RR 12-94); 5. Capital gains tax (CGT) on capital gains realized from sale, exchange or disposition of shares of stock in any domestic corporation under Section 24(e)(2) of the Tax Code, as amended; 6. All other income taxes as provided for and imposed under Title II of the Tax Code, as amended; and 7. The 3% franchise tax on gross receipts which shall be in lieu of all taxes on its franchise or earnings thereof. However, the preferential tax clause in your franchise stating that "the grantee shall pay to the Bureau of Internal Revenue each year within (30) days after the audit and approval of the accounts, three per centum (3%) of all gross receipts of the telephone or other telecommunications business transacted under this franchise by the grantee, and the said percentage shall be in lieu of all taxes on this franchise or earnings thereof" shall be understood as written, which means that a 3% franchise tax shall be collected as substitute for any internal revenue taxes other than those enumerated in items 1 to 6 above imposed on your franchise or gross receipts/earnings thereof, e.g., VAT on sale of services, or tax on overseas dispatch, message, or conversation transmitted from the Philippines prescribed under Section 102 and 118 of the Tax Code, as amended. VAT on importations under Section 101 (a) of the same Code is neither a tax on franchise nor on gross receipts or earnings thereof. Its is a tax on the privilege of importing goods whether or not the taxpayer is engaged in business, and regardless of whether the imported goods are intended for sale, barter, or exchange, or for personal use . Importation for personal use covers importation of capital equipment, or any other goods to be used in the taxpayer's business, not necessarily intended for sale, barter, or exchange and regardless of whether the taxpayer's business is VAT-registrable or not. In other words, VAT under Section 101(a) of the Tax Code, as amended, replaced the advance sales tax and compensating tax under then Sections 183(b) and 199 respectively, of the old Tax Code. Accordingly, the aforesaid 3% franchise tax did not substitute the 10% value-added tax on your importations of articles like the communications equipment and accessories including but not limited to cellular phones. This modifies BIR Ruling No. UN-035-94 issued to you on February 3, 1994 insofar as it exempts from the value-added tax, your importations of radio equipment and accessories including but not limited to cellular phones for use in your business. Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue