VAT Ruling No. 026-02

April 26, 2002 VAT RULING NO. 026-02 Sec. 30 Gentle Hands, Inc. 27/F Castillo St.,Project 4 Quezon City Attention: Mr. Dennis Hepper President Gentlemen : This refers to your letter dated June 6, 2001 in effect requesting for a VAT exemption on your purchases. It appears that Gentle Hands, Inc. is a non-stock, non-profit charitable organization that helps poor women who seek support before, during and after giving birth and was granted a tax exemption under Ruling No. S30-057-98 dated October 19, 1998. Based on the foregoing and in view of the fact that as a beneficiary of various donations you ought to make the most use of your limited financial resources, you are now asking for a VAT exemption to cut down the cost of your miscellaneous purchases and operations needs. In reply, please be informed that the tax exemption granted to you as a non-stock, non-profit charitable organization under Sec. 30 of the Tax Code of 1997 and BIR Ruling No. S30-057-98 covers only income tax which is a direct tax. The ruling states and we quote "Based on the foregoing, this Office is of the opinion and so holds that Gentle Hands, Inc. is a corporation organized for charitable purposes as contemplated under Section 30(E) of the Tax Code of 1997. Accordingly, it is exempt from the payment of income tax on income received by it as such organization, and therefore, need not file an income tax return concerning such income." Clearly your tax exemption covers only income taxes which you are directly liable there being no specific reference to your indirect tax exemption. VAT, on the other hand, is an indirect tax payable by the seller and not by the purchaser of goods. Being an indirect tax, it can be shifted or passed on to the buyer, transferee or lessee of the goods, properties or services. Once shifted to the buyer as an addition to the cost of goods or services sold, it is no longer a tax but an additional cost which the buyer/customer has to pay in order to obtain the goods or services. Thus, the shifting of the VAT to you does not make you the person directly liable and therefore, you cannot invoke your tax exemption privilege under Sec. 30(E) of the Tax Code to avoid the passing on or shifting of the VAT. Accordingly, your request is hereby denied for lack of legal basis. (SGD.) EDMUNDO P. GUEVARA Deputy Commissioner Legal & Inspection Group