VAT Ruling No. 020-98

July 15, 1998 VAT RULING NO. 020-98 Sec. 105-000-020-98 Mr. Andres L. Dy, Jr. 12-J Marcelino St. Isidora Hills, Holy Spirit Quezon City S i r : This refers to your letter dated February 26, 1998 requesting that purchases of motor vehicles made by the Philippine Amusement and Gaming Corporation (PAGCOR) from local dealers be exempted from the 10% value-added tax (VAT) considering the following: 1. That PAGCOR is exempted from VAT under Section 13 of its franchise, as amended by Presidential Decree No. 1869, to wit: "SEC. 13. Exemptions . . . . (1) Customs duties, taxes and other imposts on importations. All importations of equipment, vehicles, automobiles, boats, ships, barges, aircraft and such other gambling paraphernalia, including accessories or related facilities, for the sole and exclusive use of the casinos, the proper and efficient management and administration thereof, and such other clubs, recreation or amusement places to be established under and by virtue of this franchise shall be exempt from the payment of all kinds of customs duties, taxes and other imposts, including all kinds of fees, levies, or charges of any kind or nature, whether national or local. xxx xxx xxx" 2. That the provisions of Republic Act No. 7227, otherwise known as Bases Conversion and Development Act of 1992, should be made applicable to PAGCOR in connection with its purchases of motor vehicles from local suppliers. 3. That under Section 13 of PAGCOR's franchise, the only tax that it shall pay shall be the 5% franchise tax in lieu of national internal revenue taxes. In reply, please be informed that VAT is a direct liability of the supplier of goods, properties or services made in the course of his trade or business and only an indirect tax on the buyer. (then Sec. 99 of the NIRC, as amended, now Section 105 of the Tax Code of 1997) In BIR Ruling No. 242-88 dated June 6, 1988 and in many subsequent rulings, it has been consistently held: ". . . value-added tax is an indirect tax; hence, it can be shifted to the customer. Once shifted to the customer as addition to the cost of goods sold, it is no longer a tax but an additional cost which the customer has to pay in order to obtain the goods (Philippine Acetylene Co. vs. Commissioner of Internal Revenue, G.R. No. 19707, August 17, 1967) . . ." If the buyer is a VAT-registered taxpayer, the 10% VAT indirectly passed on by his supplier shall, however, be allowed as input tax credit instead of taken as part of cost of goods sold pursuant to then Section 104 of the NIRC, as amended, now Section 110 of the Tax Code of 1997. LLpr Since PAGCOR is subject to franchise tax in lieu of all kinds of taxes, whether imposed by the national or local government hence, the VAT indirectly passed on by its suppliers of goods, properties or services loses its character as a tax and instead only becomes a part of its cost of sales, it follows that its tax exemption under its franchise is not a valid basis for exemption from the VAT of its suppliers of goods, properties or services. Further, the provisions of R.A. No. 7227 only applies to taxpayers embraced under the said law. It does not apply to other taxpayers, such as PAGCOR, whose tax exemption privileges is governed by a different law. In view thereof, your request is hereby denied for lack of legal basis. Very truly yours, (SGD.) LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue