10% VAT Imposed on Government Agencies and Corporation

November 4, 1988 BIR RULING NO. 525-88 103 000-00 525-88 S i r : This refers to your letter dated February 1, 1988 requesting clarification on whether or not the government agencies and corporations listed therein are exempt from the payment of the value-added tax. In reply, please be informed that E.O. No. 93 issued on December 17, 1986 but which took effect on March 10, 1987, withdrew all tax and duty privileges granted to government entities. Accordingly, as a general rule, government entities are subject to the 10% value-added tax unless the respective charter of government corporations makes them directly liable but expressly exempts them from payment. Moreover, under Section 99 of the Tax Code, as amended by Executive Order No. 273, the value-added tax is the direct liability of the party selling the goods, rendering services or importing the goods. However, since the VAT is an indirect tax, it can be shifted to the customer. Once shifted to the customer as additions to the cost of the goods sold, it is no longer a tax but an additional cost which the customer has to pay in order to obtain the goods. Hence, VAT shall be imposed even if the government entity is the buyer or the party to whom service is rendered. Moreover, assuming that a government entity has a tax exemption privilege, the shifting of the VAT to said entity does not make it directly liable therefor. In other words, said entity cannot invoke its tax exemption privilege to avoid the passing on or shifting of the VAT to it. (BIR Ruling Nos. 242-88 and 243-88) Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner