BIR Ruling No. 163-12

March 7, 2012 BIR RULING NO. 163-12 Tax Code of 1997, as amended, Sections 27; 32 (B) (7) (b); BIR Ruling No. 159-1995; BIR Ruling No. 396-2011 Land Transportation Office East Avenue, Quezon City Attention: Virginia P. Torres Assistant Secretary Gentlemen : This refers to your two (2) letters dated 30 January 2012 and 02 February 2012, respectively, requesting the following: (1) approval for the sale of raffle tickets for the raffle draw which the Land Transportation Office (LTO) will conduct on 18 April 2012 in connection with its Centennial Celebration, and; (2) exemption from the imposition of income tax on the prizes that will be given during the occasion. Anent the first request, it is presumably being sought so that LTO can proceed with the printing of the raffle tickets for the raffle draw. In reply, please be informed that the governing law on the matter is Section 239 of the Tax Code of 1997, as amended. The cited provision provides, viz. : "Section 238. Printing of Receipts or Sales or Commercial Invoices. All persons who are engaged in business shall secure from the Bureau of Internal Revenue an authority to print receipts or sales or commercial invoices before a printer can print the same." In relation thereto, Revenue Regulations No. 2-78, defines receipt as "a written admission or acknowledgment of the fact of payment in money or other settlement between seller and buyer of goods, debtor and creditor, or persons rendering services and client or customer", while sales or commercial invoice is "a written account of goods sold or services rendered and the prices charged therefor, or a list of goods consigned and the value at which the consignee is to receive them or any other list by whatever name it is known which is used in the ordinary course of business evidencing sale and transfer or agreement to sell or transfer goods and services, e.g. , purchase orders, job orders; provisional and temporary receipts, etc.; except (1) freight stub receipts; (2) passage tickets; and (3) amusement tickets and other similar receipts which are governed by Revenue Regulations No. V-1, as amended". Cleary, a raffle ticket is neither a receipt nor a sale or commercial invoice. Thus, it follows that an authority to print the same is not necessary, neither is it subject to registration and approval by the Bureau of Internal Revenue (BIR Ruling No. 159-95 October 16, 1995) . cCESaH However, it is important to note that the income from the sales of the raffle tickets is subject to the income tax under Section 27 of the Tax Code of 1997. This is in accordance with Sec. 32 (B) (7) (b) of the same Code which provides that only the income derived by the government agency from the exercise of its essential governmental function shall be excluded from its gross income. (BIR Ruling No. 396-2011 dated October 25, 2011) As regards the second request, it is provided under Section 24 (B) (1) of the Tax Code that prizes amounting to more than ten thousand pesos (Php10,000.00) shall be subject to the twenty percent (20%) final tax, while prizes amounting to ten thousand pesos (Php10,000.00) or less shall be subject to the graduated income tax rate provided under Section 24 (A) (2) of the Tax Code of 1997, as amended. Notably, the income earners in a raffle draw, aside from the seller of the tickets, are the winners thereof and, therefore, the ones liable for the payment of the income tax on the prizes are the winners who, in this case, are the LTO employees. In the absence of a statute specifically exempting LTO employees from the payment of tax on prizes, they are liable for the payment thereof. Furthermore, if the prizes are more than ten thousand pesos which are subject to final withholding tax, LTO has the duty to withhold and remit to the BIR the final tax due thereon. In view of the foregoing, this office is of the opinion, as it hereby holds that LTO may proceed with the sale of the raffle tickets for its raffle draw, subject to the payment of income tax on the proceeds of the sale, and the prizes to be given away during the raffle draw shall be accordingly subject to either twenty percent (20%) final tax or the regular income tax rate under Section 24 (A) (2) of the Tax Code, as the case may be. cECTaD Please be guided accordingly. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue