VAT Ruling No. 014-99

February 11, 1999 VAT RULING NO. 014-99 Sec. 105-000-00-014-99 Fernando F . Gonzaga 414 Rizal Avenue cor. Carriedo Sta. Cruz, Manila Attention: Mr . Berne T . Cabarloc Administrative Gentlemen : This refers to your letter dated September 21, 1998 requesting for a ruling that would justify the imposition of VAT on the rental due from your tenant. It is represented that you are engaged in the business of leasing of commercial office space; that you have a tenant who claims that, having stopped engaging from business due to health reasons, continuing to maintain his office for personal use, i.e. private prayers and meditation, as the General Bishop of the Christian Church Fellowship International, Inc., he is exempt from the payment of VAT; that he likewise claims that the building administration is the one liable to pay VAT. In reply, please be informed that Sec. 105 of the Tax Code of 1997 provides: "Any person who in the course of trade or business, sells, barters, exchanges, leases goods or properties, renders services, and any person who imports goods shall be subject to VAT . . . The value-added tax is an indirect tax and the amount of tax may be shifted or passed on to the buyer; transferee or lessee of the goods, properties or services. . . . The phrase "in the course of trade or business" means the regular conduct or pursuit of a commercial or an economic activity, including transactions incidental thereto, by any person regardless of whether or not the person engaged therein is a non-stock, non-profit private organization, or government entity." While the tenant is no longer subject to VAT considering that he has ceased to engage in trade or business, and instead uses the leasehold premises for personal use, his exemption does not extend to his supplier/s upon his purchase of goods, such as groceries, or services, like lease rentals, notwithstanding the fact that these utilities are personal in nature. Accordingly, the VAT, because of its character as an indirect tax, is directly imposed upon you as lessor of real property, although the burden of paying the same is shifted to your tenants by way of passing the output VAT to them. LibLex Very truly yours, (SGD.) BEETHOVEN L. RUALO Commissioner of Internal Revenue