VAT Ruling No. 010-96

June 19, 1996 VAT RULING NO. 010-96 Section 103-110 (c)-000-010 Honorable Josefina Trinidad Lichauco Undersecretary for Communications Dept. of Transportation and Communications Philcomcen Bldg. Ortigas Ave. Pasig, Metro Manila M a d a m : This refers to your letter dated March 5, 1996 stating that you are expecting a series of shipments of telecommunication equipments from Itatel Spa, Genoa/Italy, the first lots of which are expected to arrive in Manila on March 5 and 12, 1996 via the "Clara Maersk" voy. 9605 and "Caroline Maersk" voy, 9605 respectively which, in turn, will eventually be shipped to Mindanao as final local jobsite. cdt In view subject shipments are government cargoes and of the national interests, you would like to request this office to confirm to any/all parties concerned/involved that will be involved in the transport/delivery, handling and allied services of subject shipments (i.e. shipping lines (inter island), arrastre, trucking companies, warehousing companies, forklift/crane/other heavy equipment rental operators, and other related services operators, etc.) to the various final jobsites concerned in Mindanao, that all your subject shipments (along with those forthcoming and future one's related to subject project) are exempted from VAT/EVAT for the freight/facilities/equipments/services you shall be employing from them. In reply please be informed that freight on domestic shipping is subject to VAT effective January 1, 1996, pursuant to the Expanded VAT Law (R.A. 7716); whereas trucking, heavy equipment rental, arrastre and warehousing services are already subject to VAT under the original VAT law (Executive Order No. 273), effective January 1, 1988. The VAT on the subject services is imposed on the operators of the business and when passed on to their respective clients, they are no longer tax but additional costs to the latter. Unless the client or purchasers of said services enjoy indirect tax exemptions, they cannot avoid the shifting of the VAT to them as part of the cost of the service. Such being the case, since government agencies do not enjoy indirect tax exemption, and considering that sale of VAT taxable service to the government is not one of the VAT-exempt transactions contemplated under Section 103 of the Tax Code as amended by R.A. No. 7716, your request has to be as it is hereby denied for lack of legal basis. Moreover, as a government agency, before making payment on account of your purchases of the aforesaid services, you are required to deduct and withhold the VAT at the rate of six percent (6%) based on gross receipts for services rendered by contractors on every sale or installment payments, which shall be creditable against the VAT liability of the contractors pursuant to Section 110(c) of the Tax Code, as amended by Republic Act No. 7716. prcd Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue