VAT Ruling No. 001-05

February 22, 2005 VAT RULING NO. 001-05 Sec. 109 (y) VAT Ruling No. 033-02 Book Media Press, Inc. 21 E. Boni Serrano Avenue Quezon City Attention: Mr. Benito Javierto Brizuela President Gentlemen : Reference is made to your letters dated June 24, 2004 and July 24, 2004 requesting this Office for the issuance of a certification on the following: 1. That your contracts with the Department of Education for the supply of textbooks and teachers' manuals are exempt from Value Added Tax (VAT);and 2. That the forwarding services you avail for the distribution of the said textbooks and teachers' manuals nationwide is likewise exempt from VAT. It is represented that your company is a registered member of the National Book Development Board (NBDB) with Certification of Registration No. 2004-0324 as an accredited book publisher and book printer; that on April 21, 2004, the Department of Education (DepEd) awarded you contracts involving the aggregate amount of P52,868,826.45 for the printing and delivery of textbooks and teachers' manuals for Science and Technology IV under the Second Social Expenditure Management Project covered by Contract Nos. BM-Z1-2004-SEMP2-TX, BM-Z2-2004-SEMP2-TX, BM-Z3-2004-SEMP2-TX and BM-Z4-2004-SEMP2-TX; and that as a registered member of the NBDB, it is your position that your contract with the DepEd for the supply of textbooks and teachers' manuals, as well as our contract with forwarders for the actual distribution of the same nationwide, is exempt from VAT pursuant to Section 12 of Republic Act No. 8047, otherwise known as the "Book Publishing Industry Development Act", which states: "SEC. 12. Incentives for Book Development . ... xxx xxx xxx Books, magazines, periodicals, newspapers, including book publishing and printing, as well as distribution and circulation, shall be exempt from the coverage of the expanded value-added tax law." In reply, please be informed that Section 109 (y) of the National Internal Revenue Code (NIRC),as amended, the sale, importation, printing or publication of books and any newspaper, magazine, review or bulletin, which appears at regular intervals with fixed prices for subscription and sale and which is not devoted principally to the publication of paid advertisements, is exempt from the imposition of the Value Added Tax. 2005cdtai In relation thereto, Section 3(a) of R.A. No. 8047 provides that the term "Book" as defined by the United Nations Educational Scientific and Cultural Organization (UNESCO) is a printed non-periodical publication of at least forty-eight (48) pages, exclusive of cover pages, published in the country and made available to the public. On the other hand, Section 3 (b) of the same R.A. defines "Textbook" as a book which is an exposition of generally accepted principles in one (1) subject, intended primarily as a basis for instruction in a classroom or pupil-book-teacher situation. The word "Manual" means a book that is conveniently handled; esp. HANDBOOK (Merriam Webster's Collegiate Dictionary, tenth edition). Based on the foregoing, the aforementioned textbooks and teacher's manuals may legally be treated as "Books" provided they meet the above quoted statutory requirement under Section 3 (a) and (b), R.A. No. 8047, i.e., at least forty-eight pages, exclusive of cover pages. If in the affirmative, your supply of the said textbooks and teacher's manuals, to the DepEd shall be VAT-exempt under Section 109 (y), of the NIRC, hence, also exempt from the 3% creditable VAT withholding otherwise prescribed under Section 114 (C) NIRC, as implemented by Section 4.114 (A), Revenue Regulations No. 02-98 (VAT Ruling No. 033-02, May 8, 2002). With respect to your availment of the services of forwarders for the actual distribution of the textbooks and teachers' manuals nationwide, your request for VAT exemption on the same, so that forwarders will no longer charge you VAT for the forwarding services, cannot be granted for lack of legal basis. It must be pointed out that while your company may, under the circumstances, be exempt from VAT on the supply of textbooks and teachers' manuals to DepEd pursuant to Section 12 of R.A. No. 8047, this statutory exemption only covers VAT for which you are directly liable. It does not include the VAT passed on by suppliers of goods and/or services. VAT, being an indirect tax, it may be shifted or passed on to the buyer (Section 105, NIRC). However, once shifted, it loses the character of a tax and is treated as a mere expense or part of the purchase price. Moreover, exemptions from taxation are personal in nature, hence, it cannot be assigned or transferred by the person to whom it is granted without the consent of the legislature (71 Am. Jur. 2d 629). EHSADc This ruling is being issued on the basis of the foregoing facts as represented. If upon investigation, it is discovered that the facts are different, then this ruling shall be considered null and void. Very truly yours, (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group