VAT Ruling No. 021-04

September 13, 2004 VAT RULING NO. 021-04 Sec. 105 000-00 Christ-Centered Baptist Church Blk. 5 Lot 1 Phase II, Adelina III Sto. Tomas Bian, Laguna Attention: Pastor Nathaniel B. Longinos Gentlemen : This refers to your letter dated July 20, 2003 requesting for exemption from the payment of the value-added tax on the interest on your loan. It is represented that you received a notice from your creditor bank, Manilabank, informing you of Revenue Regulations No. 12-2003 which prescribes a 10% VAT on financial and non-financial services, thereby affecting your loan transaction for the 208 sq.m. lot you purchased at the Southville, Bian, Laguna; and that the above purchased lot is intended for your church building which hopefully will commence this year when sufficient funds are available for said purpose. In support of your request, you attached copies of the following: 1) SEC registration; and 2) Building plans for the construction of your church on the above-stated lot In reply, please be informed that pursuant to Section 5 of Republic Act No. 8424, otherwise known as the Tax Reform Act of 1997, as implemented by Revenue Regulations No. 18-99, as further amended by Revenue Regulations No. 12-2003, services rendered by financial institutions is subject to value-added tax (VAT) beginning January 1, 2000. The output tax (VAT) on the services rendered by financial institutions for financial intermediation shall be computed by multiplying the gross receipts from financial intermediation services by 10%. Pursuant to Section 4 of the above Regulations, if you are a VAT-registered person, you are entitled to claim the output tax (VAT) paid by your bank as input tax credit provided that your claim must be supported by a VAT receipt/invoice. If you are not a VAT-registered person, the VAT passed on to you shall form part of your cost. Moreover, the VAT is an indirect tax, payable by the seller and not by the purchaser of goods or services. Being an indirect tax, the amount of the tax may be shifted or passed on to the buyer, transferee or lessee of the goods, properties or services (Section 105, Tax Code of 1997). Once shifted, it is no longer a tax but an additional cost which the purchaser has to pay to obtain the goods or services ( Philippine Acetylene Co. vs. Commissioner of Internal Revenue , G.R. No. L-19707, August 17, 1967). Accordingly, your request for exemption from the payment of the 10% value-added tax (VAT) on the interest on your loan is hereby denied for lack of legal basis. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered as null and void. TEAcCD Very truly yours, (SGD.) GUILLERMO L. PARAYNO, JR. Commissioner of Internal Revenue