VAT Ruling No. 031-00

September 8, 2000 VAT RULING NO. 031-00 Sec. 108 000-00 Harmony Films Distributor, Inc. 5th Floor, Trida Building Taft Avenue corner T.M. Kalaw Manila Attention: Mr . David Terence-1 Y . Tiu President Gentlemen : This refers to your letter of 21 February 2000 contending that your Company, being a Cinema/Theater operator, is exempt from the value-added tax (VAT); that you have erroneously registered the same as a VAT-registered person, hence, your request for the cancellation of the said VAT registration; that your company had, therefore, erroneously paid value-added taxes in the amount of P53,076.24 for the period from June 1998 to December 1999; that accordingly, you are entitled to and, therefore, request that your aforesaid purported erroneously paid VAT be refunded by this Office. In reply, please be informed that a Cinema/Theater operator was subject to amusement tax under Section 260 of Commonwealth Act No. 466, otherwise known as the National Internal Revenue Code of 1939 (old NIRC), as amended. The amusement tax was then computed based on " the amount paid for admission ", i.e., that cost of the admission ticket to the Cinema/Theater house. However, Sections 11 and 13 of Presidential Decree No. 231, promulgated June 28, 1973, otherwise known as the Local Tax Code, amended the aforesaid Section 260 of the old Code and thereby limited, restricted and vested only to the local governments, through the Provincial Government, the power of imposing amusement taxes on gross receipts from admission of persons to Cinema/Theater and other places of amusement, as follows: "Taxes transferred. The imposition of the taxes provided in Sections 12, 13, 14, 15 and 16 of this Code heretofore exercised by the national government or the municipal government, shall henceforth be exercised by the provincial government, to the exclusion of the national or municipal government. To avoid any revenue loss, the province shall levy and collect such taxes as provided in Section 12, 13 and 14." "Amusement tax on admission. The province shall impose a tax on admission to be collected from the proprietors, lessees, or operators of theaters, cinematographs , concert halls, circuses and other places of amusement." (SEC. 13, LOCAL TAX CODE, EMPHASIS SUPPLIED) In view thereof, the BIR stopped the imposition of the aforesaid amusement tax on gross receipts from admission of persons to places of amusement, pursuant to Sections 11 and 13 of the Local Tax Code, in relation to Section 260 of the said old NIRC. Thus the BIR ruled: "In reply to your letter dated November 19, 1973, I have the honor to inform you that the amusement tax on admission is now being collected by provinces and cities effective October 1, 1973 pursuant to Presidential Decree No . 231, otherwise known as the Local Tax Code . Such being the case, this Office cannot grant your request that the amusement tax exemption originally issued to you on August 31, 1973 covering the ballet performance to be held last October 7, 1973 at the Meralco Theater, Pasig, Rizal be made applicable to the performance to be held on December 2, 1973 also at the same theater, for the reason that the first performance was cancelled because of inclement weather. However, you are advised to direct your request to the Provincial Government of Rizal." (unnumbered BIR Ruling dated December 4, 1973) The aforesaid old NIRC was further amended by E.O. 273, effective January 1, 1988, otherwise known as the VAT law. Section 102 thereof (now Sec. 108, NIRC of 1997), in general, imposed the 10% VAT on sales of services. But, considering the provisions of Sections 11 and 13 of the Local Tax Code (supra), it was ruled that gross receipts from admission to places of amusement remained exempt from the VAT, as follows: " The collection of the amusement tax on admission to theaters and other exhibition places has been transferred to the local governments by virtue of Presidential Decree No . 231, as amended . Accordingly, your request for exemption from the amusement tax of your sponsored movies and other show benefits should be filed with the city and provincial governments concerned." (BIR RULING NO. 262-89, Dec. 15, 1989) DETcAH " Please be informed that your production of live concerts involves the rendering of amusement services . Under Sections 11 and 13 of the Local Tax Code the jurisdiction to impose amusement tax on gross receipts from admission to places of amusement "shall henceforth be exercised by the provincial Government, to the exclusion of the national or municipal Government ." In short, the BIR, being an agency of the national government, has no mandate and jurisdiction to levy gross receipts tax on admission receipts derived by places of amusement . (See also Revenue Memorandum Circular No . 8-88, issued on February 19, 1988) Accordingly, the said admission receipts are not subject to the 10% value-added tax or to the amusement tax prescribed under Section 102 or 123 of the National Internal Revenue Code, as amended, respectively . . . ." (VAT Ruling No. 073-91, Aug. 5, 1991) The Local Tax Code under P.D. No. 231 was repealed by R.A. No. 7160, enacted into law on Oct. 10, 1991, otherwise known as the Local Government Code of 1991, as follows: "SEC. 140. Amusement Tax . (a) The province may levy an amusement tax to be collected from the proprietors, lessees, or operators of theaters, cinemas , concert halls, circuses, boxing stadium, and other places of amusement at a rate of not more than thirty percent (30%) of the gross receipts from admission fees . "(b) In the case of theaters or cinemas, the tax shall first be deducted and withheld by their proprietors, lessees, or operators and paid to the provincial treasurer before the gross receipts are divided between said proprietors, lessees, or operators and the distributors of the cinematographic films. "(c) The hold of operas, concerts, dramas, recitals, painting and art exhibitions, flower shows, musical programs, literary and oratorical presentations, except pop, rock, or similar concerts shall be exempt from the payment of the tax hereon imposed. "(d) The sangguniang panlalawigan may prescribe the time, manner. terms and conditions for the payment of tax. In case of fraud or failure to pay the tax, the sangguniang panlalawigan may impose such surcharges, interest and penalties as it may deem appropriate. "(e) The proceeds from the amusement tax shall be shares equally by the province and the municipality where such amusement places are located. "SEC. 534. Repealing Clause . (a) . . . "(b) . . . "(c) The provisions of . . . Presidential Decree No . 231, as amended ; . . . are hereby repealed and rendered of no force and effect . "(d) . . . The Local Government Code of 1991 abandoned and repealed the exclusive jurisdiction of the local governments in the imposition of business tax on gross receipts from admission of persons to amusement places. Moreover, the NIRC was further amended by R.A. 7716, otherwise known as the Expanded VAT Law (EVAT), This amendment was implemented beginning January 1, 1996 pursuant to Revenue Regulations No. 6-95, promulgated December 11, 1995. Sections 99, 100 and 102, NIRC, as amended by R.A. 7716, enlarged the coverage of the VAT to embrace all sales of "goods, properties or services" made in the course of the taxpayer's trade or business. This law provides that, unless expressly provided thereunder, all the aforesaid transactions shall be subject to the 10% VAT. The Repealing Clause under Section 20 of R.A. 7716 provides: " All other laws, orders, issuances, rules and regulations or parts thereof inconsistent with this Act are hereby repealed, amended or modified accordingly ." Further, the NIRC, as amended by R.A. 7716, was further amended by R.A. 8241, effective January 1, 1997. The Repealing Clause under Section 13 of this amendatory law again provides: "SEC. 13. Repealing Clause . The provisions of Republic Act No. 6938, otherwise known as the Cooperative Code of the Philippines, authorizing the exemption of cooperatives from the sales or value-added tax are hereby repealed. 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 . It is sufficiently clear from the foregoing: 1. That because the Local Tax Code was repealed by the Local Government Code of 1991 (supra), the statutory prohibition on the national government vis-a-vis the imposition of a business tax on gross receipts from admission of persons to places of amusement had, thereafter, became ineffective and therefore without force and effect. 2. That, upon the enactment of the Expanded VAT Law under R.A. 7716, which was implemented beginning January 1, 1996 (supra), gross receipts from admission of persons to places of amusement became subject to the 10% VAT. 3. That your contention that the VAT may not legally be imposed on amusement places on the ground that this business is already imposed with amusement tax, by the local governments, has no statutory basis (supra). Moreover, the doctrine on the imposition of taxes on the same business, both by the local and national governments, had long been settled by the Supreme Court. In the case of EASTERN THEATRICAL CO., INC., ET AL. Plaintiffs-Appellant, VS. VICTOR ALFONSO, as City Treasurer of the City of Manila, THE MUNICIPAL BOARD OF THE CITY OF MANILA, AND JUAN NOLASCO, AS Mayor of the City of Manila, Defendants-Appellees (G.R. NO. L-1104, May 31, 1949), the issue raised was whether amusement taxes may be imposed both by the national government through the BIR, pursuant to the provisions of C.A. NO. 466 (old NIRC) and by the City of Manila, pursuant to the old Administrative Code, the Court held: " We see absolutely no force in plaintiffs' contention. The conflict pointed out by them is imaginary . Both provisions of law may stand together and be enforced at the same time without incompatibility among themselves ." TCaADS In view of the foregoing considerations, this Office hereby rules: 1. The gross receipts from admission of persons to places of amusement, operated in the course of the taxpayer's trade or business, such as, but not limited to, cinema houses, became subject to the 10% VAT beginning January 1, 1996, pursuant to the provisions of Section 102, old NIRC (now Sec. 108, NIRC, as renumbered), as amended by R.A. 7716, and as implemented by Revenue Regulations No. 6-95. This does not include, however, amusement places subject to amusement tax under Sec. 125 of the NIRC. 2. That your VAT-registration is not erroneous but, on the contrary, was made in accordance with the provisions of the NIRC, as amended by R.A. 7716. 3. That accordingly, there is no legal basis to your contention (supra) that you have purportedly erroneously paid your value-added taxes. Hence, your aforementioned claim for refund of your VAT payments for the period from June 1998 to December 1999, in the amount of P53,076.24, is hereby denied. Very truly yours, (SGD.) DAKILA B. FONACIER Commissioner of Internal Revenue