VAT Ruling No. 019-92

March 2, 1992 VAT RULING NO. 019-92 NIRC Sec. 103 (u) Precedent Ruling 000-00 The Honorable The Secretary of the Department of Education, Culture and Sports (DECS) Manila S i r : This refers to your letter dated June 20, 1991 stating that your Department, is presently implementing a Second Elementary Education Project which is funded through a budget support loan from the World Bank; that one of the major components of the project is the production of elementary textbooks; that the procurement of the textbook paper was made through International Competitive Bidding (ICB) which is the procurement method prescribed by the World Bank; that the bid price quoted by the local supplier excludes national and local sales taxes imposed on the sales to the purchaser, in accordance with General Condition Division II Section GC-01.1.0.1(h) of the bid documents; that if the VAT is added to the bid price, then the VAT will merely be passed on to DECS which will have to service funds to cover this additional cost. The tax exemption clause in the applicable Loan Agreement entered into between the Philippines and the International Bank for Reconstruction and Development on July 9, 1990 provides that no proceeds of the Loan shall be withdrawn on account of payment for any taxes on goods or services, or on the importation, manufacture, procurement or supply thereof etc." Accordingly, you now request for a confirmation of your opinion that the suppliers of textbook papers are zero-rated in accordance with VAT Ruling No. 012-91 dated March 12, 1991. In reply, I have the honor to inform you that under Section 28(4), Article VI of the 1987 Constitution of the Philippines, which became effective on February 2, 1987, no Law granting any tax exemption shall be passed without the concurrence of the majority of all the members of Congress. As it appears that the Loan Agreement dated July 9, 1991 covering the funding of your textbook project has not been ratified, the tax exemption clause provided therein shall be considered without force and effect. Accordingly, without Senate ratification of the agreement, your request to treat the sale of textbook paper to you as a "zero-rated sale" cannot be granted for lack of legal basis. cSICHD Very truly yours, (SGD.) JOSE U. ONG Commissioner of Internal Revenue