VAT Ruling No. 022-98

August 5, 1998 VAT RULING NO. 022-98 Sec. 108 (A)-075-022-98 Excellence Management Services, Inc. 2nd Floor, FCCCMI Building 148 Shaw Blvd., Bagong Silang Mandaluyong City Attention: Mr . John U . Chua Gentlemen : This refers to your letter dated March 20, 1998 stating that a bingo game franchisee of Pagcor pays twenty percent (20%) of the gross receipts to Pagcor representing 5% franchise tax and 15% Pagcor share; and that the franchisee pays-out a range of 47% to 58% of gross receipts as prize winnings to bingo players. In connection therewith, you are requesting a ruling to the effect that since the prize winnings and the 20% payment to Pagcor which are immediately paid-out to the players and to Pagcor, the same should be treated in the nature of "sales discounts/returns", such that the basis for the value-added tax should be the net sales (gross receipts less payment to Pagcor and prize payout); and whether the prize winnings are subject to the expanded withholding tax of 20%. In reply thereto, please be informed that pursuant to Section 108(A) of the Tax Code of 1997, there shall be levied, assessed and collected a value added tax equivalent to ten percent (10%) of gross receipts derived from the sale or exchange of services, including the use or lease of properties. The term "gross receipts" means the total amount of money or its equivalent representing the contract price, compensation, service fee, rental or royalty, including the amount charged for material supplied with the services and deposits and advanced payments actually or constructively received during the taxable quarter for the services performed or to be performed for another person, excluding the value-added tax. Thus, the prize winnings and the 20% payment to Pagcor are part of the gross receipts of the franchisee for purposes of the 10% VAT. The prize winnings and the 20% payment to Pagcor cannot be considered in the nature of "sales discounts/returns" because the term sales discounts/returns refers to the sale of goods or properties and not to the sale of services. Moreover, prizes (except prizes amounting to ten thousand pesos (P10,000.00) or less which shall be subject to tax under Section 24(A) of the Tax Code of 1997) and other winnings (except Philippine Charity Sweepstakes winnings and lotto winnings) derived from sources within the Philippines by citizen and resident alien individuals; and other winnings (except Philippine Charity Sweepstakes winnings and lotto winnings) derived from sources within the Philippines by non-resident aliens engaged in trade or business in the Philippines shall be subject to a final withholding tax of 20% (Sections 24(B)(1) and 25(A)(2) both of the Tax Code of 1997 as implemented by Revenue Regulations No. 2-28.) (VAT Ruling No. 075-97 dated December 29, 1997). LibLex Very truly yours, (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner Legal & Enforcement Group