Islamic Da'wah Council of the Philippines, Inc.

August 6, 2009 BIR RULING [NSNP-(S30E-102) 499-09] Sec. 30 (E);S-30-057-2007 Islamic Da'wah Council of the Philippines, Inc. Suite 400 FNBC Building, Escolta, Manila Attention: Atty. HJ. Abdul Rahman R.T. Linzag President Gentlemen : This refers to your letter dated June 25, 2008, received by this Office on July 14, 2008 by way of 1st Indorsement from Revenue Region No. 6-Manila dated July 3, 2008, requesting tax exemption under Section 30 (E) of the Tax Code of 1997. It is represented that Islamic Da'wah Council of the Philippines, Inc. is a non-stock, non-profit religious organization duly organized and existing under the laws of the Philippines and registered with the Securities and Exchange Commission (SEC)-Davao under SEC Registration No. 0102570 dated January 4, 1982; that the primary purposes of its organization are as follows: 1. To preach Islam religion. 2. To strengthen unity in Islam and to coordinate with all Muslim Imams and missionaries activities in the Philippines. 3. To teach basic knowledge on Islam. 4. To coordinate with school curricula in learning Arabic and Islamic religion as may be allowed by law. 5. To promote cordial relations between Muslims and non-Muslims. 6. To train missionaries on Islam. AaEcHC 7. To enhance educational advancement, scholarships and higher learning of Imams and other religious missionaries. 8. To produce Islamic literature and Islamic materials. 9. To work out the building of mosque, madrashas, Islamic centers, Islamic information centers, libraries, and other buildings for the use of Muslim missionaries and the like. 10. To publish regular magazines, leaflets, pamphlets and other reading materials on Islam and the Islamic way of life. 11. To work out for the establishment of Muslim schools and madrashas especially in the areas where Muslims are the minority. 12. To help build out the social, economical, moral and cultural development of Filipino Muslims. that the corporation's fund comes from grants, donations, bequests, contributions and other forms of financial aid from its members; that no part of the funds of the organization shall inure to the benefit of any member; and that in support of the request, the following documents were attached: a) SEC Certificate of Registration; b) Articles of Incorporation and By Laws and its Amended Articles of Incorporation; c) List of Members; d) Annual Income Tax Return for 2007, 2006 and 2005; e) Financial Statement for the years 2007, 2006 and 2005 and f) copy of RDA-RR No. 6 Ruling No. 39-06 issued on May 25, 2006 issued by Regional Director Alfredo Misajon informing the organization that it cannot issue the requested ruling for exemption because the organization has to prove by actual operation that it is an exempt corporation under Section 30 of the Tax Code, as amended. Income Tax In reply, please be informed that Islamic Da'wah Council of the Philippines, Inc., is a corporation organized for religious purposes as contemplated under Section 30 (E) of the Tax Code of 1997, as amended. Accordingly, it is exempt from the payment of tax on income received by it as such organization, and therefore, need not file an income tax return concerning such income. However, Islamic Da'wah Council of the Philippines, Inc. is subject to the corresponding internal revenue taxes imposed under the National Internal Revenue Code on its income derived from any of its properties, real or personal, or any activity conducted for profit regardless of the disposition thereof, which income should be returned for taxation. Likewise, interest income from currency bank deposits and yield or any other monetary benefits from deposit substitute instruments and from trust funds and similar arrangements, and royalties derived from sources within the Philippines are subject to the 20% final withholding tax; provided, however, that interest income derived by it from a depository bank under the expanded foreign currency deposit system shall be subject to 7 1/2% final withholding tax pursuant to Section 27 (D) (1),in relation to Section 57 (A),both of the Tax Code of 1997, as amended. Moreover, it is required to file on or before the 15th day of the fourth month following the end of the accounting period a Profit and Loss Statement and Balance Sheet with the Annual Information Return under oath, stating its gross income and expenses incurred during the preceding period and a certificate showing that there has not been any change in its By-laws, Articles of Incorporation, manner of operation and activities as well as sources and disposition of income. EIaDHS It is requested that a copy of this letter of exemption be attached to the Annual Information Return which the corporation will file on or before the 15th day of the fourth month of each year. Under Section 235 of the Tax Code of 1997, as amended, any provision of existing general and special law to the contrary notwithstanding, the books of accounts and other pertinent records of tax-exempt organizations or grantees of tax incentives shall be subject to examination by the BIR for purposes of ascertaining compliance with the conditions under which they have been granted tax exemptions or tax incentives, and their tax liabilities, if any. It should be understood that the said exempt organization shall be constituted as withholding agent for the government if it acts as an employer and its employees receive compensation income subject to the withholding tax under Section 79 (A), Chapter XIII, Title II of the Tax Code of 1997, as implemented by Revenue Regulation 2-98, or if it makes income payments to individuals or corporations subject to the withholding tax pursuant to Section 57 of the Tax Code of 1997, also as implemented by Revenue Regulation 2-98. VAT Moreover, the tax exemption granted to it as a non-stock, non-profit corporation under Section 30 of the Tax Code of 1997 covers only income taxes for which it is directly liable. Section 105 of the Tax Code of 1997 provides that any person who, in the course of trade or business, sells, barters, exchanges, leases goods or properties, renders services, and any person who imports goods shall be subject to the value-added tax (VAT) imposed in Sections 106 to 108 of the same Code. The phrase "in the course of trade or business" means the regular conduct or pursuit of a commercial or an economic activity, including transactions incidental thereto, by any person regardless of whether or not the person engaged therein is a non-stock, non-profit private organization (irrespective of the disposition of its net income and whether or not it sells exclusively to members or their guests),or government entity. 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 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. CIDcHA Thus, the shifting of the VAT to it does not make it the person directly liable and therefore, it cannot invoke its tax exemption privilege under Section 30 of the Tax Code of 1997 to avoid the passing on or shifting of the VAT. Accordingly, if Islamic Da'wah Council of the Philippines, Inc. is engaged in the sale of goods or services in the course of a business pursuit, including transactions incidental thereto, in general, it shall also be liable for VAT (BIR Ruling No. S30-27-2003 dated November 21, 2003 & DA-043-2004 dated February 4, 2004). Likewise, revenue from contributions and donations, not being derived from sale of services or sale of goods made in the course of business but rather in connection with its non-stock, non-profit activities, is exempt from the 12% VAT. Hence, notwithstanding that it is a non-stock, non-profit corporation, its purchase of goods or properties or services and importation of goods shall nevertheless be subject to the 12% VAT pursuant to Section 107 of the said Code (VAT Ruling No. 119-90 dated May 14, 1990 and BIR Ruling No. DA-043-2004 dated February 4, 2004). Donor's Tax Inasmuch as Islamic Da'wah Council of the Philippines, Inc. is a religious organization, donations to it are exempt from the payment of donor's tax pursuant to Section 101 (A) (3) of the Tax Code of 1997, subject to the condition that not more than thirty percent (30%) of said gift shall be used for administration purposes. Deductibility of Donation Section 34 (H) (1) of the Tax Code of 1997 provides that for contributions or gifts actually paid or made within the taxable year to, or for the use of corporations or associations organized and operated exclusively for religious purposes, its donors shall be entitled only to the limited deductions in an amount not in excess of 10% in the case of an individual and 5% in the case of a corporation. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be ascertained that the facts are different, then this ruling shall be considered null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service