VAT Ruling No. 011-93

April 22, 1993 VAT RULING NO. 011-93 Section 115-00-000-00-011-93 Pambato Cargo Forwarders, Inc. 2109-2111 Dimasalang Cor., Tiago Sts. Sampaloc, Metro Manila Attention: Atty . Augusto J . Salas Legal Counsel Gentlemen : This refers to your letter dated June 17, 1992 requesting for the reconsideration of VAT Ruling No. 66-92 denying your application for the cancellation of your VAT Registration No. 75-3-000254 on the ground that you are in fact engaged in the business of transporting cargo or freight taxable as a transportation contractor which is subject to the common carrier's tax, not as a forwarder which is subject to VAT. LibLex It is alleged that your principal activity involves accepting cargo from small shippers, issuing receipt for the entire consideration received, putting all of these cargo in a rented container for shipment through vessels; that small shippers patronize you because your service includes pick-up and delivery of cargo from door to door; that big shippers, however, shipped directly with the vessel itself to avail of the slight difference between your rate and the vessel owner's rate; that you cannot further increase your rates to reflect your cost and reasonable margin of profit on your service because your clients tend to ship your cargo directly with the vessels if the difference in your rates vis-a-vis the Vessel owners is substantial; that with the 10% VAT on your gross receipts without input tax for the substantial freight paid to the vessel owner in the range of 80% to 85% of the amount received from your clients, your small margin of profit is practically wiped out, as illustrated below: Amount Received from shipper P10,000.00 Less: Amount paid to vessel owner P8,000.00 Cost of your service 1,200.00 VAT 1,000.00 10,200.00 (P200.00) ======= that while other entitles operating similar business did not even bother to register as a VAT-taxpayer paying merely the common carrier's tax instead of VAT, you opted to register because of the intense campaign in your region for VAT registration during the initial implementation of the VAT, the effect of which you failed to comprehend then; and a mistake which you would like to be corrected now; that in the United States where you hope to expand, your business is classified as a "non-vessel operating common carrier". In reply, please be informed that your request to cancel your VAT-registration cannot be granted for lack of legal basis. However, based on the foregoing facts, in order to correct an absurd situation wherein a substantial portion of your gross receipt earmarked for payment to a common carrier or third person is subjected to VAT creating an absurd situation of wiping out your slight margin of profit, VAT Ruling No. 66-92 is hereby modified. For purposes of computing your value-added tax, that portion of your gross receipts from shippers intended for payment of freight to the common carrier which is a non-VAT taxpayer shall be excluded from your tax base upon which the value-added tax shall be imposed. Moreover, the receipt that you will issue to your client should indicate separately the amount earmarked for payment to the common carrier with a notation that said amount shall not generate input tax credits. cdll Very truly yours, VICTOR A. DEOFERIO, JR. Deputy Commissioner (Officer-in-Charge)