VAT Exemption on the Equipment and Materials Purchased by Summa Kumagai

July 13, 1988 BIR RULING NO. 308-88 99 000-00 308-88 Gentlemen : This refers to your letter dated May 26, 1988 which was referred to this Office by the Secretary of Finance relative to your request that the articles and materials purchased by Summa Kumagai in connection with the construction of the Trial Farms for Diversified Crops Irrigation Engineering Project (DCIEP) be exempt from the value-added tax. You contended that the Trial Farms for DCIEP is a grant project, provided on the basis of the Exchange of notes dated November 24, 1987 and December 2, 1987 between the Government of the Republic of the Philippines and the Government of Japan, thru JICA, the implementing arm for technical cooperation and grant aid programs of the latter; that the Philippine Government has the responsibility to take the necessary measures on such matters as internal revenue taxes, customs duties and the like in the implementation of the project as prescribed in Item VII (No. 2) of the Record of Discussions between the two governments; and that as Contractor, Summa Kumagai should be exempted from the VAT on the equipment and materials purchased for the project. In reply, I regret to inform you that your request cannot be granted by this Office for lack of legal basis. Pursuant to Section 99 of the Tax Code, as amended by Executive Order No. 273, the persons liable for the payment of the value-added tax are not the buyers/purchasers but the sellers or importers of goods and those performing services for a fee. Such being the case, Summa Kumagai cannot request for exemption from the VAT on the equipment and materials it purchased since it is not the one directly liable therefor although such tax can be shifted or passed on to it as part of the purchase price. Moreover, the taxes which the Republic of the Philippines agreed to meet under the Agreement refer to the customs duties, internal revenue taxes and other charges on the machinery, equipment and other materials that will be sent by JICA to the Philippines. cdtech Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner