Applicability of VAT on an Exportation

July 21, 1988 BIR RULING NO. 351-88 127 (d) 000-00 351-88 Gentlemen : This refers to your letter dated March 2, and April 5, 1988 stating that you are an Export Trading Corporation duly registered with the Securities and Exchange Commission and with the Board of Investment; and that you intend to purchase locally-manufactured cigarettes from local traders for export to foreign countries at the rate of 15,000 to 20,000 cases per month. Based on the foregoing facts, you now request for a ruling on the applicability of VAT on said exportation and whether you could claim a tax credit/refund of the specific tax passed on to you by the manufacturer. In reply, please be informed that the export sales by a VAT-registered person is subject to VAT of 0%; or, in other words, zero-rated pursuant to Section 100(a)(1) of the Tax Code, as amended by E.O. No. 273. If the export sale is made by a person who is not a VAT-registered, it is merely exempt from VAT pursuant to Section 103(v) of the same Code. If the export sale is zero-rated, the exporter is entitled to claim a tax refund/credit of the VAT added to the cost of goods purchased and exported; otherwise, if the export sale is merely exempt, the exporter is not allowed to claim a tax refund/credit. As a BOI-registered person, you are also exempt from VAT under Section 103(u) of the same Code. However, in view of your tax exemption as a BOI-registered trader, you cannot be registered as a VAT taxpayer, unless you waived your tax exemption as a BOI-registered taxpayer. This is so because a taxpayer is not allowed to straddle between two tax-exemption privileges. Accordingly, to avail of the benefit of zero rating, you must apply for the cancellation of your registration with BOI and apply for registration as a VAT taxpayer. Pursuant to Section 127(d) of the Tax Code, as amended by Executive Order Nos. 22 and 273, a tax refund/credit of the specific tax element will result if locally-produced (specific) tax paid cigarettes sold to you by the manufacturer or by another local trader are actually exported without returning to the Philippines, upon submission of proof of actual exportation and receipt of the foreign exchange payment. Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner