BIR Ruling No. 380-15

October 29, 2015 BIR RULING NO. 380-15 RA 10349; BIR Ruling No. 396-2014; BIR Ruling No. 397-2014; BIR Ruling No. 398-2014 Department of National Defense DND Building, Camp Gen. Emilio Aguinaldo Quezon City Attention: Voltaire T. Gazmin Secretary of National Defense Gentlemen : This refers to your letter dated April 8, 2015, requesting exemption from value-added tax (VAT) on the acquisition of Enhanced Data Generation System for the Intelligence Service Armed Forces of the Philippines (ISAFP) with a contract amount of Nineteen Million Nine Hundred Sixty Five Thousand Nine Hundred Thirty-Two and 88/100 Pesos (P19,965,932.88). It is represented that the acquisition of the above equipment is for the modernization of the ISAFP and part of the Modernization Program of the Armed Forces of the Philippines (AFP). The Contract for the said project was awarded to Datatrail Corporation, a domestic corporation with business address at Manggahan Light Industrial Park, Amang Rodriguez Avenue, Pasig City. It is claimed that the acquisition of said Enhanced Data Generation System is exempt from VAT pursuant to Section 10 of Republic Act (RA) No. 10349, amending RA No. 7898. In reply, please be informed that Section 10 of RA 10349, amending RA No. 7898, provides: "SEC. 10. Insert three (3) sections after Section 16 of the same Act which shall now become the new Sections 17, 18 and 19 respectively, which shall read as: 'SEC. 17. Exemption from Value-Added Tax and Customs Duties . The sale of weapons, equipment and ammunitions to the AFP, which are directly and exclusively used for its projects, undertakings, activities and programs under the Revised AFP Modernization Act, shall be exempt from the value-added tax; Provided, That the importation of the same by the AFP shall likewise be exempt from the value-added tax and customs duties.' xxx xxx xxx" Under Section 10 of RA 10349, the sale of weapons, equipment and ammunitions to the Armed Forces of the Philippines (AFP), which are directly and exclusively used for its projects, undertakings, activities and programs under the Revised AFP Modernization Act, shall be exempt from VAT. In relation thereto, the Department of National Defense (DND) issued the Department Circular No. 3 (Issuing the Implementing Guidelines, Rules and Regulations of the Revised Armed Forces of the Philippines Modernization Act) dated April 11, 2013 which, among others, defined the term "equipment" as referring to "all non-expendable items needed to outfit or equip any individual and/or organizations and sub-organizations within the AFP." (BIR Ruling Nos. 396-2014, 397-2014 and 398-2014 dated October 17, 2014) Accordingly, the acquisition by the AFP of the Enhanced Data Generation System from Datatrail Corporation in pursuit of the modernization of the ISAFP and funded through the AFP Modernization Fund, is exempt from VAT, provided that the Enhanced Data Generation System shall be used directly and exclusively by the AFP for its projects, undertakings, activities and programs under the Revised AFP Modernization Act. (BIR Ruling Nos. 396-2014, 397-2014 and 398-2014 dated October 17, 2014) This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation it will be disclosed that the facts are different, then this ruling shall be considered null and void. (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue