VAT Ruling No. 030-98

September 22, 1998 VAT RULING NO. 030-98 R.A. 8241-000-030-98 Philippine Racing Club, Inc. Sta. Ana Park, A.P. Reyes Avenue Makati City Attention: Mr . Alan V . Abesamis Vice President for Finance Gentlemen : This refers to your letters of January 31, 1997 and May 25, 1998 requesting confirmation that the Philippine Racing Club, Inc. (PRCI) is now liable to the payment of the 10% Value-Added Tax (VAT) by virtue of R.A. 7716 (Expanded VAT Law) in lieu of the franchise tax imposed upon it by R.A. 6632, the original franchise of PRCI, and R.A. 7953, enacted on March 30, 1995, which renewed and extended said franchise. Under your said franchise, PRCI is liable to pay "a franchise tax equal to twenty-five percent (25%) of its gross earnings . . . which is equivalent to the 8 % of the total wager funds or gross receipts on the sale of betting tickets . . .". In reply, please be informed that the pertinent portion of Section 102 of the old NIRC, as amended by R.A. No. 7716 (enacted May 5, 1994), otherwise known as the Expanded VAT Law, provides as follows: "SEC. 102. Value-added Tax on Sale of Services and Use or Lease of Properties . "(A) Rate and Base of Tax . 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 phrase ' sale or exchange of services ' means the performance of all kinds of services in the Philippines for others for a fee, remuneration or consideration, including those performed or rendered by construction and service contractors; stock, real estate, commercial, customs and immigration brokers; lessors of property, whether personal or real; warehousing services; . . . services of franchise grantees of telephone and telegraph, radio and television broadcasting and all other franchise grantees except those under Section 117 of this Code; . . ." (Emphasis supplied) R.A. 7716, under the Repealing Clause thereof, provides: "SEC. 20. Repealing Clause . The provisions of any special law relative to the rate of franchise taxes are hereby repealed. Sections 113, 114 and 116 of the National Internal Revenue Code are hereby repealed. (Emphasis supplied). xxx xxx xxx "All other laws, orders, issuances, rules and regulations or parts thereof inconsistent with this Act are hereby repealed, amended or modified accordingly." Section 1, R.A. 8241 (enacted December 20, 1996), otherwise known as the Improved VAT Law, reiterated the above referred Section 102 of the NIRC, as amended by R.A. 7716, although with certain modifications. Its relevance with respect to the franchise of PRCI is that R.A. 8241 maintained that "all other franchise grantees" are covered by the phrase "sale or exchange of services" for purposes of VAT. dctai R.A. 8241 further amended Sec. 117 of the said NIRC, as follows: "Tax on Franchises. Any provision of general or special law to the contrary, notwithstanding, there shall be levied, assessed and collected in respect to all franchises on radio and/or television broadcasting companies whose annual gross receipts of the preceding year does not exceed Ten million pesos (P10,000,000.00), subject to Section 107(d) of this Code, a tax of three percent (3%) and on electric, gas and water utilities, a tax of two percent (2%) on the gross receipts derived from the business covered by the law granting the franchise: Provided, however, That radio and television broadcasting companies referred to in this section, shall have an option to be registered as a value-added taxpayer and pay the tax due thereon: Provided, further, That once the option is exercised, it shall not be revoked. . . ." Likewise, the repealing clause found in R.A. 8241 provides that ". . . All other laws, orders, issuances, rules and regulations or parts thereof inconsistent with this Act are hereby repealed, amended or modified accordingly." In a nutshell, all legislative franchise grantees, except those engaged in the business of radio and/or television broadcasting, telephone and telegraph, electric, gas and water services, became subject to VAT in lieu of their franchises upon the effectivity of R.A. 7716 and R.A. 8241, the provisions of their respective franchises to the contrary notwithstanding. prLL Since PRCI is a legislative franchise grantee other than the excepted classes enumerated above, your sale of services has, beginning January 1, 1996 (the date when R.A. No. 7716 took effect), become subject to the 10% value-added tax. Accordingly, your operation is now subject to 10% VAT in lieu of the franchise tax, to be computed based on your gross receipts as this term is defined under Section 108(A) of the Tax Code of 1997, rather than on your gross earnings. It is likewise represented that pursuant to your franchise, you are under obligation to remit the 25% franchise tax payments imposed on your gross earnings to certain beneficiaries in accordance with the following allocation: National Government 5% Local Government where race track is located 5% Philippine Charity Sweepstakes Office 7% Phil. Anti-Tuberculosis Society 6% White Cross 2% 25% You now pose the question on whether you are still under obligation to remit the allocations as described above in the event that your coverage to VAT is confirmed. In this regard, it is our considered opinion that R.A. 7716 and R.A. 8241 merely replaced the franchise tax and its rate with that of VAT and did not affect your obligation under your franchise. It follows that your payment of value-added taxes beginning January 1, 1996 shall be distributed and paid as provided for in your legislative franchise in the same manner as your payments of franchise taxes have been so distributed and paid. Very truly yours, (SGD.) BEETHOVEN L. RUALO Commissioner of Internal Revenue