BIR Ruling No. 310-11

August 22, 2011 BIR RULING NO. 310-11 Philippine Charity Sweepstakes Office Metrobank Plaza, Sen. Gil Puyat Avenue Makati City 1200 Attention: Margarita P. Juico Chairman Gentlemen : This refers to your letter dated April 28, 2011 requesting for the implementation of the exemption granted by former President Joseph Ejercito Estrada under Memorandum dated February 21, 2000 to PHILIPPINE CHARITY SWEEPSTAKES OFFICE as a charitable organization in accordance with Article VI, Section 28 par. 3 of the 1987 Constitution. It is represented that Memorandum dated February 21, 2000 was approved by former President Joseph Ejercito Estrada wherein the PHILIPPINE CHARITY SWEEPSTAKES OFFICE ("PCSO") was "declared as a tax-exempt entity which does not have to pay any taxes to the Bureau of Internal Revenue, Bureau of Customs, and other government agencies" pursuant to Article VI, Section 28 par. 3 of the 1987 Constitution; that in the pursuit of its mandated task, the PCSO operates and conducts on-line gaming activities and other lotteries to raise funds for health programs, medical assistance and services and charities of national character; that despite the perception that the PCSO has billions of funds, more that 43% of its revenues are allocated to various national government programs and agencies, pursuant to legislative enactments, executive issuances, while the remaining revenues are reserved for institutional and individual assistance; that as the new stewards of the PCSO, the present Board inherited more than P3 Billion in unpaid accounts to various hospitals; and that the PCSO is faced with the BIR assessment charging PCSO of more or less P758.527 Million representing deficiency payments for Documentary Stamp Tax and more or less P1 Billion in interest and surcharges for the period of 2006-2008. Based on the foregoing, you now request that the exemption granted by former President Estrada be implemented in accordance with Article VI, Section 28 par. 3 of the 1987 Constitution exempting charitable institutions from taxation. TSHEIc In reply, please be informed that your request cannot be granted for lack of legal basis. Along with police power and eminent domain, taxation is one of the three basic and necessary attributes of sovereignty. Thus, the State cannot be deprived of this most essential power and attribute of sovereignty by vague implications of law. Rather, being derogatory of sovereignty, the governing principle is that tax exemptions are to be construed in strictissimi juris against the taxpayer and liberally in favor of the taxing authority; and he who claims an exemption must be able to justify his claim by the clearest grant of statute. 1 Tax exemptions must be construed strictly against the taxpayer and liberally in favor of the taxing authority. The burden of proof rests upon the party claiming exemption to prove that it is in fact covered by the exemption so claimed. In case of doubt, non-exemption must be favored. Taxes being the lifeblood of the government that should be collected without unnecessary hindrance, every precaution must be taken not to unduly suppress it. 2 Following the above established rule and principle, there are only two (2) laws that grant tax exemption to PCSO. We refer to Republic Act (RA) No. 1169, as amended, which exempts from all taxes the horse races and sales of sweepstakes tickets , and RA 8424 or the National Internal Revenue Code of 1997 (NIRC of 1997), as amended, which exempts PCSO from corporate income tax. But the fact that the aforesaid laws specifically identify the tax-exempt items or transactions only means that PCSO is not exempt from any and all kinds of taxes. Expressio unius est exclusion alterius , the mention of one thing implies the exclusion of another thing not mentioned. If a statute enumerates the things upon which it is to operate, everything else must necessarily and by implication be excluded from its operation and effect. 3 Indeed, except for the horse races, sales of sweepstakes tickets and corporate income tax, PCSO is liable for other internal revenue taxes, such as Documentary Stamp Tax on the sale of lotto tickets and other tickets for other games. PCSO's liability for DST is confirmed by the Court of Tax Appeals in C.T.A. Case No. 8036, entitled "Philippine Charity Sweepstakes Office vs. Commissioner of Internal Revenue" , upholding the BIR deficiency DST assessment against PCSO for its sale of lotto tickets and other tickets for other games. Hence, PCSO's claim that it is a tax exempt entity being a charitable institution under Section 28 (3), Article VI of the 1987 Constitution is misplaced. As explained by the Supreme Court in Lung Center of the Philippines vs. Quezon City and Constantino P. Paras, City Assessor of Quezon City 4 that the Constitutional provision covers property taxes only . Thus: "The tax exemption under this constitutional provision covers property taxes only. As Chief Justice Hilario G. Davide, Jr., then a member of the 1986 Constitutional Commission, explained: ". . . what is exempted is not the institution itself . . .; those exempted from real estate taxes are lands, buildings and improvements actually, directly and exclusively used for religious, charitable or educational purposes." Corollarily, if the real property, although actually owned by the charitable institution is used for a non-exempt purpose, the exemption from tax shall not attach. THEDCA Moreover, it must be emphasized that the approval of former President Estrada of the PCSO's absolute exemption from all kinds of taxes is without legal force and effect as it contravenes the constitutional limitations that regulate and define the power of taxation which is being exclusively vested in the legislature, except where the Constitution provides otherwise. Art. VI, Sec. 28 (4) of the 1987 Constitution provides that: "No law granting any tax exemption shall be passed without the concurrence of a majority of all the members of the Congress" Under Art. VI, sec. 28 (2) of the 1987 Constitution, the Congress may delegate the President the power to tax limited to tariff rates, import and export quotas, tonnage and wharfage dues, and other duties or imposts but not extending such delegated power over internal revenue taxes. Art. VI, sec. 28 (2) provides that: "The Congress may, by law, authorize the President to fix within specified limits, and subject to such limitations and restrictions as it may impose, tariff rates, import and export quotas, tonnage and wharfage dues, and other duties or imposts within the framework of the national development program of the government." The grant of tax exemption is inherently legislative. Tax exemption is a result of a legislative grace. 5 The selection of subjects to be taxed, determination of purposes, fixing the rate, rules of taxation in general, determining situs of tax imposition, grant tax exemptions or condonations, specify or provide for the administrative, as well as judicial, remedies that either the government or taxpayers may avail of, are within the taxing powers of the legislature. Moreover, the Bureau of Internal Revenue is principally charged with the implementation and enforcement of the National Internal Revenue Code. Sections 4 and 5 of the NIRC of 1997, as amended provides for the exclusive and original power to interpret provisions of the Tax Code and other tax laws, subject to the review by the Secretary of Finance as well as the power to assess and collect all internal revenue taxes, fees and charges. In view of the foregoing, the approval by former President Estrada of Memorandum dated February 21, 2000 embodying the absolute exemption of PHILIPPINE CHARITY SWEEPSTAKES OFFICE from the payment of all taxes is without merit. The request of exemption by PHILIPPINE CHARITY SWEEPSTAKES OFFICE from the payment of all taxes, particularly, from payment of Documentary Stamp Tax, cannot be granted for lack of legal basis. Hence, the BIR assessment charging PCSO of more or less P758.527 Million representing deficiency payments for Documentary Stamp Tax and more or less P1 Billion in interest and surcharges for the period of 2006-2008 is within the authority of the Bureau of Internal Revenue. DACTSH Please be guided accordingly. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue Footnotes 1. Jaka Investment Corporation vs. Commissioner of Internal Revenue , G.R. No. 147629 citing Compagnie Financiere Sucres Et Denrees v. Commissioner of Internal Revenue , G.R. No. 133834, August 28, 2006, 499 SCRA 664, 667-668. 2. Republic vs. Caguioa , G.R. No. 168584, October 15, 2007. 3. Tolentino vs. Paqueo , 523 SCRA 377. 4. G.R. No. 144104, June 29, 2004. 5. Commissioner of Internal Revenue vs. Fortune Tobacco Corporation , G.R. Nos. 167274-75, July 21, 2008.