Whether Asiatrust Bank is Exempt under the Thrift Banks Act from Payment of VAT on Importation of Computer Equipment

November 20, 1998 BIR RULING NO. 163-98 107 (A)-000-00-163-98 Asiatrust Bank Bldg. 1424 Quezon Avenue Quezon City Attention: Ms . Ma . Neriza C . San Juan Vice-President Head-Legal Services Group Gentlemen : This refers to your letter dated October 21, 1998 addressed to the Hon. Edgardo B. Espiritu, Secretary of Finance, Roxas Blvd. cor. Vito Cruz St., Manila, which was referred to this Office by the Hon. Solomon C. Cua, Undersecretary of Finance, on November 3, 1998 relative to your request for exemption from the payment of VAT on your importation of several computer equipment on the ground that you are exempt from the payment of all taxes under Section 17 of Republic Act No. 7906, otherwise known as the Thrift Banks Act of 1995. It is represented that your request for exemption from VAT relative to your purchase of several computer equipment was denied by the Department of Finance; that your subsequent request for reconsideration was referred to the Bureau of Internal Revenue, Quezon City; and that you have decided to instead import the computer equipment directly. In reply thereto, please be informed that Section 17 of Republic Act No. 7906, otherwise known as the Thrift Banks Act of 1995, provides that all thrift banks created and organized under the provisions of the Act and thrift banks already in operation as of the date of effectivity thereof on March 18, 1995 shall be exempt from the payment of all taxes, fees and charges of whatever nature and description, except corporate income taxes and local taxes, fees and charges. The exemption shall be for a period of five (5) years from the date of commencement of operations; while for thrift banks which are already existing and operating as of the date of effectivity of the Act (March 18, 1995), the tax exemption shall be for a period of five (5) years reckoned from the date of such effectivity, provided that the said tax exemption shall continue to be in force and effect only until December 31, 1999 thereby subjecting all thrift banks to taxes, fees and charges in the same manner and at the same rate as banks and other financial intermediaries pursuant to Section 7 of R.A. 8424, otherwise known as the Tax Reform Act of 1997. VAT on importations under Section 107(A) of the Tax Code of 1997 is not a tax on the operation of the thrift bank. It 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. In other words, VAT under Section 107(A) of the Tax Code of 1997 replaced the advance sales tax and compensating tax under then Sections 183(b) and 199, respectively, of the old Tax Code. Accordingly, your exemption from taxes under Republic Act No. 7906 does not include VAT on importation under the said Section 107(A) of the Tax Code. In view thereof, your importation of computer equipment is subject to VAT under Section 107(A) of the Tax Code of 1997. prcd Very truly yours, (SGD.) BEETHOVEN L. RUALO Commissioner of Internal Revenue