VAT Ruling No. 016-98

May 22, 1998 VAT RULING NO. 016-98 Sec. 105; Sec. 106-000-016-98 General Electric Philippines Meter & Instrument Company, Inc. 28 1st Avenue, Bagumbayan Taguig, Metro Manila Attention: Ms . Ester L . De Jesus Manager-Financial Operations Gentlemen : This refers to your letter dated October 2, 1997 seeking the opinion of this Office on the taxability of your sale of watthour meters and sockets to the National Electrification Administration (NEA) and Tarlac I Electric Cooperative, Inc. (TARELCO). It is represented that you are billing 10% VAT on all your sales/deliveries to NEA and TARELCO; that however, NEA and TARELCO claim that their purchases from your firm are exempted from the VAT; and that attached in your letter are copies of two contracts with the NEA for the Rural Electrification Projects funded by the Overseas Economic Cooperation Fund (OECF) of Japan, one of which is worth P160,878,547.00 for the supply of watthour meters and sockets while another is for high capacity sockets valued at JY195,766,764.00 and a copy of another contract with TARELCO for the delivery of meters relative to its Systems Loss Reduction Program for P17,740,980.04. In reply, please be informed that Section 100 of the National Internal Revenue Code (NIRC), as amended (now Sec. 106 of the Tax Code of 1997) provides that " there shall be levied , assessed and collected on every sale , barter or exchange of goods or properties , a value-added tax equivalent to 10% of the gross selling price or gross value in money of the goods or properties sold , bartered or exchanged , such tax to be paid by the seller or transferor ." It is provided further that " the term 'gross selling price' means the total amount of money or its equivalent which the purchaser pays or is obligated to pay to the seller in consideration of the sale , barter or exchange of the goods or properties , excluding the value-added tax ." Such being the case, your sale of watthour meters and sockets to NEA and TARELCO are subject to the 10% VAT on sale of goods. Moreover, then Section 99 of the same Code (now Sec. 105 of the Tax Code of 1997) provides that " 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 liable to the value-added tax (VAT) imposed in Sections 100 to 102 of this Code (now Secs . 106 and 108 of the Tax Code of 1997 , respectively) . 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 ." Thus, your firm, being the seller in the above transaction, is liable for the payment of the VAT. However, you have the right to pass on to your buyers the amount of said tax pursuant to the above provision of law. If your customers are VAT-exempt persons, such passed-on VAT is not considered a tax but part of the acquisition cost of the items purchased. With respect to the claim of NEA and TARELCO that their purchases are exempt from the VAT, this Office is not aware of any provision of law, general or special, to that effect. Very truly yours, (SGD.) LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue