VAT Ruling No. 024-96

September 23, 1996 VAT RULING NO. 024-96 Sec. 99-100-007-024 Benson Industries, Inc. Banilad, Mandaue, Cebu Attention: Mr . Bienvenido U . Teves Accountant Gentlemen : This refers to your letter dated February 22, 1996, requesting a ruling on whether government agencies are subject to value added tax. It is represented that the Department of Labor and Employment (DOLE) is renting your building for their various offices in Cebu City at P210,000.00 per month starting last May; and that they refused to pay the VAT as they alleged that they are exempted from VAT, being a government agency. In reply, please be informed that government entities and instrumentalities, including government owned or controlled corporations are subject to tax. However, as lessor of real property, you are primarily liable to the payment of VAT based on your gross receipts under Section 102 of the Tax Code, as amended. Moreover, since VAT is an indirect tax, the amount of tax may be passed on to the buyer of goods or services as part of cost, pursuant to Section 99 of the same Code. Accordingly, as the lessor, the amount of VAT on rental services may be shifted or passed on to your lessee, the Department of Labor and Employment Office in Cebu City, in accordance with the terms and conditions of the lease contract. However, before making payment on account of the leased services, DOLE is required to deduct and withhold the VAT at the rate of 6% based on your gross receipts as lessor excluding VAT, which shall be creditable against your output VAT liability pursuant to Section 110 (c) of the Tax Code, as amended by Republic Act No. 7649, as implemented by Revenue Regulations No. 10-93. Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue