VAT Ruling No. 004-00

January 13, 2000 VAT RULING NO. 004-00 108 174-98 004-00 M.R. Pamaran & Associates 5th Floor, Philsteel Tower 140 Amorsolo Street, Legaspi Village Makati City Attention: Atty . Vernard V . Quijano Gentlemen : This refers to your letter dated June 18, 1998 requesting for a ruling as to whether or not the services rendered by your client, Ironcon Builders Development Corporation, to Manila Jockey Club, Inc. (MJCI) is exempt from value-added tax. It appears that MJCI is a grantee of a legislative franchise under R.A. No. 6631, as amended by R.A. No. 8407 dated November 23, 1997, to construct, operate and maintain a race track for horse racing in the City of Manila or any place within the provinces of Bulacan, Cavite or Rizal and extending the said franchise by twenty-five (25) years from the expiration of the term thereof; that under Section 12 of its franchise, MJCI is liable to pay " a franchise tax equal to twenty-five percent (25%) of its gross earnings which is equivalent to the eight and one-half per centum ( 8 . 5% ) of the total wager fund or gross receipts on the sale of betting tickets . . . ." In reply, please be informed that although MJCI is liable to pay a franchise tax pursuant to R.A. No. 8407, it does not mean that MJCI would be totally exempt from the operation of the VAT system. Consonant with its franchise, MJCI shall not be subject to output VAT on its gross receipts on race track operations. However, it cannot claim exemption from the input VAT being passed on by suppliers of goods and services such as IronCon Builders Development Corporation. VAT, being an indirect tax, may be shifted or passed on to the buyer of goods and services pursuant to Sec. 105 of the Tax Code of 1997. (BIR Ruling No. 174-98 dated December 11, 1998) The value-added tax is payable by the seller and not by the purchaser of goods or services. Once shifted, it is no longer a tax but an additional cost which the purchaser has to pay to obtain the goods or services (Philippine Acetylene Co. vs. Commissioner of Internal Revenue, G.R. No. L-19707, August 17, 1967). Accordingly, the sale of services by Ironcon Builders Development Corporation to MJCI is subject to VAT imposed under Section 108 of the Tax Code of 1997. prcd Very truly yours, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner Legal and Enforcement Group