VAT Ruling No. 006-01

February 16, 2001 VAT RULING NO. 006-01 RMC 8-99 RR 8-99 RMC 11-99 000-00 ISAP, Incorporated (Insurance & Surety Association of the Philippines) Room 448, Regina Building Escolta, Manila Attention: Mr . Edwin B . Celino President Gentlemen : This refers to your letters dated July 7, 1999 and March 13, 2000 stating your industry position with respect to the invoicing requirements under RMC 8-99 which in essence mandates that the value added tax should not be indicated as a separate item in the invoice and that the output tax be computed by multiplying the amount indicated in the invoice by 1/11. It is your position that your industry can comply with the requirement that the VAT not be separately shown in the invoice but your problem is that all other taxes which are imposed on non-life insurance premiums may be computed on the amount of gross receipts subject to VAT or vice versa. As represented, the non-life insurance industry is also subject to the following taxes in addition to VAT, i.e., Documentary Stamp Tax, equivalent to 12.5%; Fire Service Tax, equivalent to 2%; and Local Government Tax, equivalent to 15% of 1%. All of these taxes are computed based on premiums and thus, not showing separately the VAT in the invoice given to policyholders will result in the computation of these other taxes inclusive of the VAT. Thus, there will be a tax on tax which will have an adverse effect on the industry as it will be charging the insured with a higher amount, which is erroneous. In reply, please be advised that Revenue Memorandum Circular 11-96 already clarified that for purposes of determining the gross receipts of non-life insurance companies subject to value-added tax, said gross receipts do not include documentary stamp tax and other local taxes. Thus, pertinent portion of said Circular quoted hereunder: "Q-9 What are not included in the "gross receipts" of non-life insurance companies? "A-9 Said "gross receipts" shall not include the following: a. Premiums refunded within six (6) months after payment on account of rejection of risk or returned for other reason to the person insured (return premiums); b. Premiums on reinsurance of a company that has already paid the tax; c. Premiums on account of any reinsurance, if the risk insured against covers property located outside of the Philippines; d. Documentary stamp and local taxes passed on by the insurance company to the insured : and e. VAT passed on the insured." Accordingly, for non-life insurance companies, the computation of VAT on premium should not include DST, fire service tax and local government tax. In the same manner, these taxes are likewise based on the premium alone and should not be computed inclusive of VAT, otherwise there will be a cascading effect on tax which revenue authorities hope to avoid at every instance. In order to reflect the proper taxable base in the computation of VAT and other premium-based taxes, this Office shall not consider it a violation of law and regulations for non-life insurance companies to separately indicate the tax base or the premium on its invoice and to identify the amount of taxes properly appertaining to VAT, DST, fire service tax and local taxes. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be discovered that the facts are different, then this ruling shall be considered null and void. SHTEaA Very truly yours, (SGD.) RENE G. BAEZ Commissioner of Internal Revenue