Persons Ordinarily Subject to the Percentage Tax are, Necessarily, Exempt from the Fixed Tax

May 9, 1960 BIR RULING NO. 197-60 The Regional Director B.I.R Regional District No. 5 San Pablo City S i r : In your letter of January 20, 1960, you have brought to the attention of this Office BIR Rulings No. 181 dated March 23, 1959, which you believe is erroneous for the reasons stated in the said letter. casia While it may be admitted that a literal construction of Section 182, paragraph (C-1) of the Tax Code would seem to point to the conclusion that the exemption provided therein includes persons engaged in the practice or pursuit of their profession or occupation, considering that said persons are now subject to fixed tax under said section. It would not be so, however, if we consider the history of said section, the nature of the fixed tax on occupation, and the pronouncement of the courts on the matter. Before the approval of Republic Act No. 1612, business and occupation were subject to the fixed tax under separate provisions of the Tax Code. Business subject to the percentage tax as well as those which are not were subject to the fixed tax under section 182 and the exemption therefrom were provided for in the last paragraph of said section; whereas, those engaged in the exercise or pursuit of a profession or on occupation were subject to the fixed tax under section 201 and the exemption therefrom was provided in section 202. Note that the exemption from the fixed tax granted by section 182(a) [now sec. 182 par. (C-1] in favor of persons whose gross quarterly sales are not more than P450 (now P200 a month) is based on the amount of their gross quarterly (now monthly) sales . The exemption from the percentage tax provided in section 188(a) has the same basis, i.e., the amount of gross quarterly sales. Persons ordinarily subject to the percentage tax who are exempt under section 188 are, necessarily, exempt from the fixed tax. It should b noted too, that only persons subject to the percentage tax pay the same quarterly (now monthly). (sec. 183, tax Code). From these, it is clear that the exemption now found in section 182 (C-1) could refer only to persons subject to the percentage tax. Note further, that the exemption from the fixed tax on occupation was in favor only of persons whose entire professional services are devoted exclusively to the government or to a non-profit entity. There was no exemption from the fixed tax in their favor which based on the amount of their earnings. (Section 202, Tax Code, 1954) This true until now. However, upon the approval of Republic Act 1612, the fixed taxes on business and occupation as well as the exemption therefrom were incorporated in section, i.e., section 182 now, the sole purpose of which, insofar as fixed tax is concerned, was to group under one section all persons subject to fixed tax. Said Act never intended to expand the exemptions form the fixed tax then existing prior to its passage because the said exemptions under the same Act are mere reproductions of the previous ones saves for minor changes in phraseology which are not substantial. Moreover, it is to be noted that the fixed tax on occupation is a tax on the privilege to exercise or follow a profession or an occupation. It is not based on the earnings derived therefrom. As a matter of fact, professionals are not subject to any percentage tax on their earnings derived from their practice, in contrast to persons engaged in business subject to the said tax. To provide, therefrom, an exemption from the fixed tax on occupation based on the amount of earnings would be absurd because one must be otherwise subject first before he can be exempt. Lately, the Court of Tax Appeals had occasion to rule that Section 182(C)(1) does not apply to the fixed tax on occupation. (Virginia Amor, et. al, vs. Commissioner of Internal Revenue, CTA Case No. 629, August 17, 1959). In view of the foregoing, this Office believes and so holds that the questioned ruling is correct. Please be guided accordingly. In passing, please be informed that an amendatory measures designed to avoid misinterpretation of the exemption clauses of section 182 was already submitted to Congress. Very truly yours, (SGD.) MELECIO R. DOMINGO Commissioner of Internal Revenue