Request for Exemption from VAT on Purchase by Member-Thrift Banks of Hardware and Software Computers

November 26, 1996 BIR RULING NO. 127-96 R.A. 7906; 99 000-00 127-96 Chamber of Thrift Banks Unit 1714 Cityland 10 Condominium Tower I H.V. dela Costa Street, Salcedo Village Makati City Attention: Mr . Marcos C . Hermoso Gentlemen : This refers to your letter dated April 20, 1996, in effect requesting exemption from the payment of the value-added tax on the purchase by your member-thrift banks of hardware and software computers, pursuant to Section 17 of Republic Act No. 7906 otherwise known as the Thrift Banks Act, which provides viz: "SEC. 17. Tax Exemptions . All thrift banks, whether created or organized under this Act or in operation as of the date of effectivity of this Act, shall be exempt from payment of all taxes, fees and charges of whatever nature and description, except the corporate income taxes, fees and local taxes, fees and charges for the period of five (5) years, counted form the date of commencement of operations for thrift banks under this Act and from the date of effectivity of this Act for existing thrift banks". In reply, please be informed that the exemption of thrift banks from taxes under the aforequoted section of R.A.. No. 7906 is limited only to taxes directly payable by them. The value-added tax is an indirect tax , payable by the seller and not by the purchaser of goods. Being an indirect tax, the amount of the tax may be shifted or passed on to the buyer, transferee or lessee of the goods, properties or services. (Section 99, Tax Code, as amended by R.A.. No. 7716). Once shifted, it is no longer a tax but an additional cost which the purchaser has to pay to obtain the goods. (Philippine Acetylene Co. vs. Commissioner of Internal Revenue, G.R. No. L-19707, August 17, 1967) Hence, a thrift bank can not invoke its tax exemption privileges to avoid the passing on or shifting of the VAT being billed by the manufacturer/seller of hardware and software computers. Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue