BIR Ruling [UN-341-95]

September 19, 1995 BIR RULING [UN-341-95] Sievex International, Inc. Suite 101, Sievex House Building 3 F. C. Salvador, San Juan, Metro Manila Attention: Mr . Manuel R . Sy President Gentlemen : This refers to your letter dated March 20, 1995 stating that your company is a small local supplier (value added trader/distributor) of packaging materials (sacks/bags) to fertilizer manufacturers/importers and companies which deals on feeds and feed ingredients, rice, corn and other agricultural products; that you do finishing operations to make the product of the manufacturer usable by the end-user; that although the essential products in which your bags/sacks are used are VAT exempt, you pay value added tax on the bags/sacks you deliver; that due to the essential nature of the products in which your packaging materials are used, your profit margin is very low ranging from 2% 4% of gross price; that you extend 45-60 days credit terms to top five thousand (5,000) corporation; that a 1% withholding tax based on gross sales will deplete your operating funds substantially considering that your product is high volume, low price and low margin in nature; that your marketing and distribution cost is high; that freight and transportation cost is high because the product is high volume, bulky but low priced; that as a small local goods supplier, you support the operations of the top five thousand (5,000) corporations you served; that you often absorbed price increases on your products just to maintain your competitiveness; and that often times, the top five thousand (5,000) corporations make money and the small local goods supplier just break even. Based on the foregoing, you now request for exemption from the creditable expanded withholding tax of one percent (1%) on income payments made by any of the top five thousand (5,000) corporations pursuant to Revenue Regulations No. 12-94. In reply thereto, please be informed that your request cannot be granted by this Office for lack of legal basis, Section 1 of Revenue Regulations No. 12-94 amending Section 1 of Revenue Regulations No. 6-85, as amended, otherwise known as the Expanded Withholding Tax Regulations, provides that income payments made by any of the top five thousand (5,000) corporations, as determined by the Commissioner of Internal Revenue, to their local suppliers of goods shall be subject to a creditable expanded withholding tax of one percent (1%). [Sec. 1 (n), RR 6-85 as amended]. (BIR Rulings No. 141-94 dated September 20, 1994) Further, it has been the constant and uniform holding that exemption from taxation is not favored and is never presumed, so that if granted it must be strictly construed against the taxpayer. Affirmatively put, the law frowns on exemption from taxation, hence, an exempting provision should be construed strictissimi juris . (Catholic Church vs. Hastings, 5 Phil 70; Esso Standard Eastern, Inc. vs. Acting Commissioner of Customs, L-D1841, Oct. 28, 1966, 18 SCRA 488; Phil. Acetylene vs. Comm. of Int. Rev., L-19701, Aug. 17, 1967, 20 SCRA 1056; Comm. of Int. Rev. vs. Guerrero, L-20942, Sept. 22, 1967, 21 SCRA 180; Manila Electric Co. vs. Vera, L-29987, Oct. 22, 1975, 67 SCRA 351) Very truly yours, ALICIA P. CLEMENO Assistant Commissioner (Legal Service)