Indirect Tax Exemption of NPC Covers Both Excise Tax and VAT

September 15, 1993 BIR RULING NO. 373-93 INDIRECT TAX EXEMPTION OF NPC COVERS BOTH EXCISE TAX AND VAT 145-00 00-00 73-93 National Power Corporation Corner Quezon Avenue & Agham Road Diliman, Quezon City Attention: Dr . F . L . Viray President This refers to your letter dated July 14, 1993, in effect, requesting for confirmation of your opinion that you are not only exempt from both excise tax and value-added tax on your purchases of fuel and oil products, but also exempt from VAT on your purchases of other goods and services; and if in the affirmative, you asked for clarification on the mechanics of implementing your tax exemption. cdtech Obviously, the purpose of your present request is to clarify the extent of your indirect tax exemption under the recent Supreme Court decision and resolution in the case of Maceda vs. Macaraeg, Jr. G.R. No. 88291 promulgated on May 31, 1991 and June 8, 1993, respectively, on the issue whether your tax exemption will extend to all taxes, direct or indirect on the rest of your purchases of products/articles other than petroleum products. In reply, please be informed that a dispositive part on Page 51 of the decision dated May 31, 1991 states: "This decision particularly treats of only the exemption of the NPC from all taxes, fees, imposts and all other charges imposed by the government on the petroleum products it used or uses for its operation; and (b) Section 13(c) R.A. No. 6393 and Section 13(d) of P.D. No. 380, both specifically exempt the NPC from all taxes, duties, fees imposts and all other charges imposed by the Government on all petroleum products used in its operation only, which is the very exemption which this Court deems to be carried over by the passage of P.D. No. 938. As a matter of fact in Section 13(d) of P.D. No. 380 it is specified that the aforesaid exemption from taxes, etc. covers those "directly or indirectly" imposed by the "Republic of the Philippines, its provinces, cities, municipalities and other government agencies and instrumentalities" on said petroleum products. The exemption therefor from direct and indirect tax on petroleum products used by NPC cannot benefit the suppliers, importers and contractors of NPC of other products and services." (emphasis supplied). The pertinent dispositive portion of the Supreme Court Resolution promulgated on June 5, 1993 on the same case likewise states: "In view of all the foregoing, the Court rules and declares that the oil companies which supply bunker fuel oil to NPC have to pay the taxes imposed upon said bunker fuel oil sold to NPC. By the very nature of indirect taxation, the economic burden of such taxation, the economic burden of such taxation is expected to be passed on through the channels of commerce to the user or consumer of goods sold. Because, however, the NPC has been exempted from both direct and indirect taxation, the NPC must be held exempted from absorbing the economic burden of indirect taxation. This means, on the one hand that oil companies which wish to sell to NPC must absorb all or part of the economic burden of the taxes previously paid to the BIR, which they could shift to NPC if NPC did not enjoy exemption from indirect taxes. This means also, on the other hand, that the NPC may refuse to pay that part of the "normal" purchase price of bunker fuel oil which represents all or part of the taxes previously paid by the oil companies to the BIR. If NPC nonetheless purchases such oil from the oil companies because to do so may be more convenient and ultimately less costly for NPC than NPC itself importing and hauling and storing the oil from overseas NPC is entitled to be reimbursed by the BIR for that represents the tax already paid by the oil company-vendor to the BIR." "It should be noted at this point in time that the whole issue of who will pay these indirect taxes, HAS BEEN RENDERED moot and academic by E.O. No. 195 issued on June 16, 1987 was reduced to ZERO (0%) PER CENTUM. Said E.O. No. 195 read as follows: "EXECUTIVE ORDER NO. 195 "AMENDING PARAGRAPH (b) OF SECTION 128 OF THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED, BY REVISING THE EXCISE TAX RATES OF CERTAIN PETROLEUM PRODUCTS. xxx xxx xxx SEC. 1. Paragraph (b) of Section 128 of the National Internal Revenue Code, as amended, is hereby amended to read as follows: Par. (b) For products subject to ad valorem tax only: PRODUCT AD VALOREM TAX RATE 1. . . . 2. . . . 3. . . . 4 Fuel oil, commercially known as bunker oil and on similar fuel oils having more or less the same generating power 0% xxx xxx xxx Sec. 3. This Executive Order shall take effect immediately, Done in the City of Manila, this 17th day of June, in the year of Our Lord, nineteen hundred and eighty seven" (Emphasis supplied) "The oil companies can now deliver bunker fuel oil to NPC without having to worry about who is going to bear the economic burden of the ad valorem taxes." xxx xxx xxx Based on the aforequoted portions of the decision and resolution of the Supreme Court, your indirect tax exemption covers not only excise tax but also value-added tax on your purchases of petroleum products only; and not on your purchases of other goods or services. The language used by the Supreme Court being clear, it should be understood as written. In availing of your tax exemption, with respect to your purchases of petroleum products presently subject to excise tax at zero percent, no further procedure is required because the zero tax rate has already relieved you from paying the excise tax burden. With respect to other petroleum products subject to various rates of excise tax as well as on certain petroleum products subject to value-added tax, it would suffice for control purposes if the receipt or invoice covering your tax-exempt purchases of these products is stamped by the seller thereof with these words "Tax Exempt Sale to NPC. aisadc RENE G. BAEZ Deputy Commissioner of Internal Revenue