VAT Ruling No. 025-99

March 15, 1999 VAT RULING NO. 025-99 109 (c) 106 (A) (2) (c) 108 (B) (3) 000-00 025-99 Social Security System East Avenue, Diliman Quezon City Attention: Atty . Amador M . Monteiro Vice-President (Legal and Collection) Gentlemen : This refers to your letter dated July 22, 1998 requesting clarification as to whether or not the tax exemption of the Social Security System (SSS) under Section 16 of Republic Act No. 8282, as amended by R.A. 1161 (Social Security Law) covers indirect taxes, like the value-added tax. llcd It appears that on July 23, 1997, then Regional Director Antonio I. Ortega of Revenue Region No. 8, Makati City, issued a clarificatory letter to Siemens Nixdorf to the effect that its sales to SSS are subject to 10% VAT on the ground that the tax exemption granted to SSS by the Social Security Law refers only to direct taxes and not to indirect taxes; that an indirect tax, like VAT, is a tax on the seller of goods and not on the purchasers and the burden of paying the goods may either be absorbed by the seller himself or passed on to the buyer as part of the purchase price of the goods sold; and that the seller cannot insist he should not pay the tax because the buyer, SSS, is tax-exempt pursuant' to the doctrine enunciated in the case of Phil. Acetylene Co.. Inc. vs. Commissioner of Internal Revenue (20 SCRA 1056) In your request, you contended that SSS is exempt from indirect taxes like VAT based on the following grounds, viz: 1. SSS enjoys tax exemption not only on all its assets and properties, contributions collected and income or investment earnings but also on all its supplies, equipment papers and documents which are required in the operation or execution of the Social-Security Act; LexLib 2. DOF has granted SSS authority to import tax and duty free computer hardware and software and other equipment needed in your computerization program although the said authority did not categorically state that you are exempt from VAT on the imported equipment; 3. Under the Tax Reform Act of 1997, SSS enjoys exemption from the payment of income tax imposed under Section 27(a) pursuant to Section 27(c) thereof; 4. Section 109(q) of the Tax Code of 1997 acknowledges the VAT exemption of persons or entities like the SSS under special laws or international agreement while Sections 106(A)(2)(c) and 108(B)(3) subject the sale of goods and services to tax exempt persons or entities to zero percent (0%) rate VAT. In reply, please be informed that your contention is devoid of merit. As correctly pointed out by Director Antonio I. Ortega, the tax exemption granted to SSS under R.A. No. 8282 covers only direct taxes, there being no specific reference to its indirect tax exemption. As such, SSS cannot claim exemption from the payment of VAT on its local purchase of supplies, equipment, papers and documents because the same is a tax directly payable by the seller/s thereof. The fact that the tax may ultimately be shifted to or passed on to SSS as part of the cost of the articles purchased will not constitute the same as a tax payable by SSS for purposes of the exemption. For the same reasons, the sale of goods to SSS cannot qualify for zero-rating. Finally, the exemption of SSS from income tax under Section 27(c) of the Tax Code of 1997 does not include exemption from VAT. Very truly yours, (SGD.) BEETHOVEN L. RUALO Commissioner of Internal Revenue