BIR Ruling No. 349-12

May 18, 2012 BIR RULING NO. 349-12 Section 105 of the Tax Code of 1997; BIR Ruling No. 310-2011; BIR Ruling No. 083-2011; VAT Ruling No. 056-02 Church of God World Missions of the Philippines, Inc . Dr. Lovell R. Cary ACCM Bldg.,102 Valero St. Salcedo Village, Makati City 1299 Attention: Bishop Roberto M. Tuazon Corporate Secretary Gentlemen : This refers to your letter dated February 1, 2012 requesting for the exemption of CHURCH OF GOD WORLD MISSIONS OF THE PHILIPPINES, INC. from the payment of Value-Added Tax as it is operating as a non-stock and non-profit religious organization under Section 30 (E) of the Tax Code of 1997, as amended. In reply, we regret to inform you that your request for tax exemption cannot be granted for lack of legal basis. Section 105 of the Tax Code of 1997 provides that any person who, in the course of trade or business, sells, barters, exchanges, leases goods or properties, renders services, and any person who imports goods shall be subject to the value-added tax (VAT) imposed in Sections 106 to 108 of the same Code. The phrase "in the course of trade or business" means the regular conduct or pursuit of a commercial or an economic activity, including transactions incidental thereto, by any person regardless of whether or not the person engaged therein is a non-stock, non-profit private organization (irrespective of the disposition of its net income and whether or not it sells exclusively to members or their guests),or government entity. Accordingly, any person engaged in the sale of goods or services in the course of a business pursuit, including transactions incidental thereto, in general, shall also be liable to VAT. The tax exemption granted to corporations under Section 30 of the Tax Code of 1997 covers only income taxes for which said corporations are directly liable. It should be noted that VAT is an indirect tax payable by the seller and not by the purchaser of goods. However, being an indirect tax, it can be shifted or passed on to the buyer/purchaser, transferee or lessee of the goods, properties or services. Once shifted to the buyer/customer as an addition to the cost of goods or services sold, it is no longer a tax but an additional cost which the buyer/customer has to pay in order to obtain the goods or services. (BIR Ruling No. 083-2011 dated March 15, 2011) The seller is the one primarily liable to the payment of VAT but it can pass on to you the amount of tax as part of your purchases of goods and/or services. You cannot claim exemption from the VAT being passed on by your seller because VAT being an indirect tax may be shifted or passed on to the buyer of goods and services, pursuant to Section 105 of the same Code. While CHURCH OF GOD WORLD MISSIONS OF THE PHILIPPINES, INC. may be exempt from the payment of income tax on income received by it as religious organization under Section 30 of the Code, its exemption only covers income taxes for which it is directly liable. The exemption does not cover the VAT passed on by VAT-registered companies on the association's purchases. It is a well-settled principle in statutory construction that exemption from tax is strictly construed against the taxpayer and liberally in favor of the taxing authority. A taxpayer who claims an exemption must be able to justify by the clearest grant of organic or statute law its exemption from the payment of tax. An exemption from the common burden cannot be permitted to exist upon vague implication. (BIR Ruling No. 083-2011 citing VAT Ruling No. 056-02 dated September 12, 2002) The shifting of the VAT to a tax-exempt organization does not make it the person directly liable and therefore, said organization cannot invoke its tax exemption privilege under Section 30 (E) of the Tax Code to avoid the passing on or shifting of the VAT. Hence, the purchase of goods and/or services by CHURCH OF GOD WORLD MISSIONS OF THE PHILIPPINES, INC. from VAT-registered companies shall nevertheless be subject to the 12% VAT pursuant to Section 108 of the said Code, as amended by Republic Act No. 9337. 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. 1 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. 2 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. 3 (BIR Ruling No. 310-2011 dated August 22, 2011) Please be guided accordingly. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue Footnotes 1. Tolentino vs. Paqueo, 523 SCRA 377. 2. 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. 3. Republic vs. Caguioa, G.R. No. 168584, October 15, 2007.