VAT Ruling No. 030-99

March 18, 1999 VAT RULING NO. 030-99 Secs. 117 (c) 102 (a) 004-96 030-99 Ms . Alicia Ll . Reyes Chairman and Chief Executive Officer Phil. Amusement and Gaming Corporation (PAGCOR) 1330 Roxas Blvd., Ermita, Manila Dear Chairman Reyes : This refers to your letter of 12 October 1998 concerning your request for a confirmation that PAGCOR remains subject only to a 5% franchise tax in lieu of all taxes considering the following: 1. That SEC. 13 of PAGCOR's Charter (P.D. 1869) provides that it shall only be liable to the said 5% franchise tax in lieu of all taxes; cdll 2. That former Executive Secretary Ruben D. Torres, Office of the President of the Philippines, opined in his letter to you dated 29 August 1995 that PAGCOR's Charter was not amended by the general repealing laws promulgated by former President Corazon C. Aquino under Executive Order No. 72 dated 25 November 1986, and Executive Order No. 93 dated 17 December 1986; that the said opinion is confirmed by the letter of former Secretary of Justice Teofisto T. Guingona, Jr. to former Secretary of Finance Roberto F. de Ocampo dated 14 May 1996 in which was held that E.O. No. 72 and E.O. No. 93 did not amend PAGCOR's Charter; and that relying on the said opinion, former Department of Finance Secretary de Ocampo also informed you in his letter of 02 July 1997 that E.O. No. 93 did not amend PAGCOR's Charter. In reply, please be informed that, even assuming arguendo that the general repealing laws under E.O. Nos. 72 and 93 did not amend PAGCOR's Charter, the subsequent laws enacted by Congress under R.A. No. 7716, otherwise known as the Expanded VAT Law, and R.A. No. 8241, otherwise known as the Improved VAT Law, provided as follows: R.A. No. 7716 (EVAT) "Sec. 3. Section 102 of the National Internal Revenue Code as amended is hereby further amended to read 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 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 . . . 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 ; . . ." "Sec. 12. Section 117 of the National Internal Revenue Code as amended, is hereby further amended to read as follows: "Sec. 117. 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 electric, gas and water utilities a tax of two (2%) on the gross receipts derived from the business covered by the law granting the franchise. "Sec. 20. Repealing Clauses . The provisions of any special law relative to the rate of franchise taxes are hereby expressly repealed . Sections 113, 114 and 116 of the National Internal Revenue Code are hereby repealed." R.A. 8241 (IVAT) "SEC. 3. Section 102 of the National Internal Revenue Code as amended, is hereby further amended to read as follows: "SEC. 102. Value-added tax on sale of services and use or lease of properties. . . . The phrase 'sale or exchange of services' means the performance of all kinds of services . . .; services of franchise grantees of . . . all other franchise grantees except those under Section 117 of this Code ; . . ." "SEC. 117. Tax on franchise . Any provision of general or special law to the contrary notwithstanding there shall be levied assessed and collected in respect of 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: . . ." "SEC. 13. Repealing Clause . . . . All other laws, orders issuances, rules and regulations or parts thereof which are not consistent with this Act are hereby repealed, amended or modified accordingly ." In view of the foregoing, it is clear that all legislative franchise grantees, except only " electric, gas and water utilities " have been expressly subjected to the 10% VAT pursuant to Section 102, old NIRC, as amended by R.A. No. 7716 (now Sec. 108, Tax Code of 1997). It is equally clear that R.A. No. 8241 did not restore the old tax exemption privilege of PAGCOR under its legislative franchise because its amendment as far as franchise grantees are concerned is limited only to " radio and/or television broadcasting " Therefore, upon effectivity of Section 102 (now Sec. 108) of the NIRC, as amended by R.A. No. 7716, PAGCOR ceased to be embraced by the franchise tax. Instead, it became subject to the 10% VAT, in lieu of all other taxes, pursuant to Sec. 13 of P.D. No. 1869 (i.e. PAGCOR's Charter), as amended by Sections 3 and 12 of R.A. No. 7716. Moreover, the issue on whether PAGCOR became subject to VAT, in lieu of franchise tax, upon effectivity of the Expanded VAT Law under R.A. No. 7716, has already been resolved in VAT Ruling No. 004-96 dated May 14, 1996, the dispositive portion of which provided: " In reply, please be informed that PAGCOR, which falls under 'other franchise grantees' under Section 117(c) of the Tax Code, as amended, is now subject to the 10% VAT under Section 102(a) of the same Code, as amended by Republic Act No. 7716, otherwise known as the Expanded VAT Law, effective January 1, 1996 ." cdlex Very truly yours, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner Legal & Enforcement Group