BIR Ruling No. 434-13

November 14, 2013 BIR RULING NO. 434-13 Tax Code of 1997, Section 109 (1) (H); BIR Ruling No. 159-11; BIR Ruling No. 168-11 St. John Berchmans Creative Learning Center Villa Florentina Subd., Manghinao Proper Pandayan, Bauan, Batangas Attention: Maria Beatriz M. Asilo Sole Proprietress Gentlemen : This refers to your letter dated 06 June 2012, indorsed to this Office by Revenue Region No. 9, San Pablo City, requesting on behalf of St. John Berchmans Creative Learning Center for exemption from value-added tax (VAT) and percentage tax pursuant to Section 109 (1) (H) of the Tax Code of 1997, as amended. It is represented that, St. John Berchmans Creative Learning Center , is an educational sole proprietorship registered under the name of Maria Beatriz M. Asilo, with Taxpayer's Identification Number (TIN) 115-746-970-000; that it is duly registered with the Department of Trade and Industry (DTI) under Certificate No. 00868832 valid from 01 October 2009 until 01 October 2014; and that it is recognized and permitted by the Department of Education (DepEd) under Government Recognition No. K-015, s. 2002 dated 28 January 2002 to operate N-K-P of the Pre-Elementary Course effective as of SY 2002-2003. In support of its request, St. John Berchmans Creative Learning Center has completely submitted on 15 November 2012 the following documents: 1) Letter application for tax exemption; 2) Certified true copy of the Certificate of Registration with the DTI; 3) Certified true copies of the Annual Income Tax Returns and Financial Statements for the last three years of operation; 4) Certified true copy of the DepEd's Recognition; and 5) BIR Certificate of Registration. In reply, please be informed that Section 109 (1) (H) of the 1997 Tax Code, as amended, provides for the exemption of educational institutions from the payment of VAT, to wit: IEAHca "Section 109. Exempt Transactions. (1) Subject to the provisions of Subsection (2) hereof, the following transactions shall be exempt from the value-added tax: xxx xxx xxx (H) Educational services rendered by private educational institutions, duly accredited by the Department of Education (DepEd), the Commission on Higher Education (CHED), the Technical Education and Skills Development Authority (TESDA) and those rendered by government educational institutions." Inasmuch as St. John Berchmans Creative Learning Center is an educational institution, its gross receipts from educational services it rendered are not subject to value-added tax (VAT) pursuant to Section 109 (1) (H) of the 1997 Tax Code, as amended, or to the percentage tax under Section 116 of the same Code. However, other activities involving sale of goods and services not in connection with its educational purposes are subject to the 12% VAT imposed under Sections 106 and 108 of the Tax Code of 1997, as amended, or 3% percentage tax imposed under Section 116 in relation to Section 109 (V) of the same Code if the gross sales or receipts from such sale of goods and services do not exceed One Million Nine Hundred Nineteen Thousand Five Hundred Pesos (P1,919,500.00) 1 which tax payment may legitimately be passed on to buyers of such goods and services. Hence, as long as St. John Berchmans Creative Learning Center will not engage in the regular conduct or pursuit of a commercial or economic activity, including transactions incidental thereto, it will remain exempt from VAT or percentage tax. (BIR Ruling No. 159-2011 dated May 19, 2011) It must be emphasized however that the exemption of St. John Berchmans Creative Learning Center from VAT is limited only to its gross receipts derived from the conduct its educational purposes. Hence, its purchase of goods and services are still subject to VAT. 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 the 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. Thus, the shifting of the VAT to it does not make it the person directly liable. (BIR Ruling No. 168-2011 dated May 25, 2011) 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. CEHcSI Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue Footnotes 1. The increase in the threshold amount for the sale or lease of goods or properties or the performance of services covered by Section 109 (P), (Q) and (V) of the 1997 Tax Code took effect on January 1, 2012, pursuant to Revenue Regulations No. 16-2011 dated October 27, 2011.