Clarification the Passing of VAT to Customers Who Enjoy Tax Exemption

October 10, 1988 BIR RULING NO. 484-88 99-00 297-88 484-88 Gentlemen : This refers to your letter dated August 4, 1988, in effect, requesting clarification whether or not you can pass on the VAT to your customers who enjoy tax exemption e.g., educational institutions, hospitals, restaurants, government agencies and entities. It is represented that you are in the business of leasing watercoolers; that among your customers are those, who claim to enjoy tax exemption; and that, they refuse to pay the VAT element in your rental billing to them. In reply, please be informed that VAT is an indirect tax; hence, it can be shifted to the customer. Once shifted, it is no longer a tax but an additional cost which the customer has to pay to obtain the goods. (Philippine Acetylene Co. vs. Commissioner of Internal Revenue, G.R. No. L-19707, August 17, 1967) Likewise, when VAT is added to your rental billing to your customer, it is no longer a tax, but an additional cost of the service. Accordingly, the tax exemption status of the customer, other than those for whom sales of goods or services are authorized to be zero-rated, cannot be invoked to avoid the payment of the VAT on your billing for rental of watercoolers. Very truly yours, (SGD.) EUFRACIO D. SANTOS Deputy Commissioner