BIR Ruling No. 390-15

November 3, 2015 BIR RULING NO. 390-15 Republic Act (RA) No. 8436, as amended by RA No. 9369 Commission on Elections Intramuros, Manila Attention: Christian Robert S. Lim Commissioner Project Manager, 2016 National Local Elections Gentlemen : This refers to your letter dated October 15, 2015, requesting, on behalf of the Commission on Elections ("COMELEC", for brevity), confirmation that its local purchases of goods and services as well as importation of goods are exempt from value-added tax (VAT) and percentage tax imposed under the National Internal Revenue Code ("NIRC") of 1997, as amended, pursuant to Republic Act (RA) No. 8436, as amended by RA No. 9369. It is represented that the COMELEC is an independent Constitutional Commission whose primary mandate under the 1987 Constitution is to enforce and administer all laws and regulations relative to the conduct of an election, plebiscite, initiative, referendum, and recall; that in line with the above mandate, the COMELEC will administer another automated National and Local Elections on May 9, 2016; that in relation to said elections, the COMELEC has been procuring goods and services from foreign and local sources since October 2014; that the list of goods and services that have been procured and/or to be procured by the COMELEC in relation to the May 9, 2016 elections are the following, to wit: 1. Optical Mark Reader or Optical Scan with Election Management System and other related requirements; 2. Ballots and other ballot related goods and services; 3. Ballot printing facilities; 4. Ballot boxes; 5. Technical Support; 6. Laptop for Canvassing and Consolidation System (CCS) with printer; 7. Central Server, Transparency Server, Back-up Server, Web Server and other equipment needed in Election Results Transmission Solutions, Management and Services (ERTSMS); 8. Deployment Services; 9. Warehousing Services; 10. SD Card, USB key for CCS and other CCS items; 11. National Technical Support Center; 12. Election Day Computerized Voter's List (EDCVL) Printing; 13. Automated Election System (AES) Groups/Committees and Election Supplies and Materials (accountable and non-accountable);and 14. Other automated elections-related goods and services as the COMELEC may deem necessary for the conduct of the May 9, 2016 National, Local and Autonomous Region in Muslim Mindanao (ARMM) elections. It is further represented that at this point, some of the needed goods and services are already covered by contracts while others are still being procured or to be procured through the COMELEC's Bids and Awards Committee or other appropriate offices; and that per Certification dated October 15, 2015 issued by the COMELEC's Project Management Office, the procurement of said goods and services started in October 2014 and may be completed in October 2016, to complete the post-election activities on pre-determined timelines. In reply, please be informed that RA No. 8436, as amended by RA No. 9369, provides for the COMELEC's exemption from taxes on its procurement of goods and services in relation to the automated elections, viz. : " SEC. 12. Procurement of Equipment and Materials. To achieve the purpose of this Act, the Commission is authorized to procure, in accordance with existing laws, by purchase, lease, rent or other forms of acquisition, supplies, equipment, materials, software, facilities and other services, from local or foreign sources free from taxes and import duties ,subject to accounting and auditing rules and regulations. With respect to the May 10, 2010 elections and succeeding electoral exercises, the system procured must have demonstrated capability and been successfully used in a prior electoral exercise here or abroad. Participation in the 2007 pilot exercise shall not be conclusive of the system's fitness ." (Emphasis supplied) It must be noted that the twelve percent (12%) VAT or the three percent (3%) percentage tax, whichever is applicable, is a tax on the business transaction or activity and is an indirect tax which the seller of goods or services may pass-on or shift to the customer/purchaser who ultimately bears or assumes the burden of the tax. However, Section 12 of RA No. 8436, as amended by RA No. 9369, clearly intended to exempt COMELEC from the 12% VAT and 3% percentage tax on its local purchases of goods and services as well as importation of goods that will be used relative to the conduct of the May 9, 2016 National, Local and ARMM automated elections. Hence, the suppliers/sellers of goods and services to COMELEC cannot shift or pass on any VAT or percentage tax to COMELEC on the latter's purchases of goods and services that will be used in the May 9, 2016 National, Local and ARMM automated elections. Moreover, importation by COMELEC of goods that will be used in the May 9, 2016 automated elections is also exempt from VAT. It must be emphasized, however, that the exemption of the COMELEC from VAT and percentage tax is limited only to its purchases and/or importation of goods and services enumerated above during the period from October 2014 until October 2016. Moreover, the tax exemption shall cover only goods and services that will be used in, or directly related to, the conduct of the May 9, 2016 automated elections, excluding therefrom goods and services that are intended for manual elections. 1 Likewise, the grant of tax exemption is subject to post audit verification whether the purchased/imported goods/services are directly related to the May 9, 2016 automated elections. Finally, COMELEC shall act as withholding agent for the expanded/creditable withholding tax on its payments to local suppliers for the purchase of goods and/or services. 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 Footnotes 1. RA No. 8436, as amended by RA No. 9369, pertains to the use of COMELEC of an Automated Elections System. Hence, the grant of tax exemption under Section 12 of said law must only pertain to goods and services related to the automated elections.