VAT Ruling No. 031-04

October 29, 2004 VAT RULING NO. 031-04 Sec. 109 (j) (z) PEJG Shuttle Bus Service 209 M.L. Quezon Street, Lower Bicutan Taguig, Metro Manila Attention: Estrella D. Capiz Proprietress Gentlemen : This refers to your letter dated November 5, 2003 requesting clarification as to whether your company is still subject to the three percent (3%) tax as transportation contractor or shall be reclassified as a value-added taxpayer, since your gross annual receipts exceeded the P550,000.00 threshold provided for under Section 109(z) of the Tax Code of 1997. It is represented that your company, PEJG Shuttle Bus Service (PEJG), is a single proprietorship engaged in the business of transportation service; that your company provides air-conditioned and non air-conditioned buses for the exclusive use of the employees of your client companies; that in consideration for the said services, your clients pay a specific amount per trip computed depending upon the route specified; that your client companies deduct 2% from your gross billings representing the withholding tax due by your company as a transportation contractor; that you pay the salaries of your drivers and dispatchers and maintain a garage for your buses, including a personnel for repairs and maintenance; that your company is governed and supervised by the Land Transportation Office (LTO) in the registration of buses and by the Land Transportation Franchising and Regulatory Board (LTFRB) for the franchises necessary for your operations; and that your company's operation is similar to the operation of public transport companies, the only difference is that in case of public transport companies, it is the passenger who pays for the transport fare, while in your case, it is the client company/employer who pays for the transport fare under a shuttle service contract. It is further represented that your company has been paying the three percent (3%) tax from the start of your operation in year 2000 to present as a transportation contractor pursuant to Section 117 of the Tax Code of 1997. However, in view of the fact that your gross annual receipts exceeded P550,000.00, your company is now being assessed to pay the value-added tax (VAT) imposed under Section 108 relation to Section 109(z) of the Tax Code of 1997. In reply, please be informed that Sections 109(j) and (z) of the Tax Code of 1997 provide as follows: "SEC. 109. Exempt Transactions. The following shall be exempt from the value-added tax: "(j) Services subject to percentage tax under Title V; "xxx xxx xxx" "(z) Sale or lease of goods or properties or the performance of services other than the transactions mentioned in the preceding paragraphs , the gross annual sales and/or receipts do not exceed the amount of Five hundred fifty thousand pesos (P550,000): Provided, That not later than January 31st of the calendar year subsequent to the effectivity of Republic Act No. 8241 and each calendar year thereafter, the amount of Five hundred fifty thousand pesos (P550,000) shall be adjusted to its present value using the Consumer Price Index, as published by the National Statistics Office (NSO). (emphasis supplied) "xxx xxx xxx" Based on the afore-cited provisions, it is clear that the P550,000.00 threshold provided for under Section 109(z) supra pertains to or is relevant only to services or transactions other than those specifically enumerated under Section 109 of the Tax Code of 1997. Consequently, services already subjected to the percentage tax shall be exempt from VAT, regardless of whether the gross annual receipts therefrom exceeded P550,000.00 pursuant to Section 109(j) supra . In this regard, Section 117 of the same Tax Code reads, viz : "SEC. 117. Percentage Tax on Domestic Carriers and Keepers of Garages . Cars for rent or hire driven by the lessee, transportation contractors , including persons who transport passengers for hire, and other domestic carriers by land, air or water, for the transport of passengers, except owners of bancas and owners of animal-drawn two wheeled vehicle, and keepers of garages shall pay a tax equivalent to three percent (3%) of their quarterly gross receipts. (emphasis supplied) "xxx xxx xxx" Based on the foregoing provisions, common carriers or transportation contractors are explicitly subjected to the three percent (3%) tax, and therefore, exempt from VAT. For this purpose, " a common carrier or transportation carrier may be defined, broadly, as one who holds himself out to the public as engaged in the business of transporting persons or property from place to place, for compensation, offering his services to the public generally ." 1 Article 1732 of the New Civil Code of the Philippines defines a "common carrier" as "any person, corporation, firm or association engaged in the business of carrying or transporting passengers or goods or both, by land, water, or air, for compensation, offering their services to the public." Based on the above definitions and requirements, there is no doubt that your company is a transportation contractor for the transport of passengers within the purview of Section 117 of the Tax Code of 1997. You are engaged in the business of transporting or carrying of passengers, more specifically, the employees of client companies, for hire as a public employment. Likewise, your company undertakes to carry passengers indifferently, that is, to all persons who may choose to employ your services, and transports the passengers by land and for compensation. The fact that your company has a limited clientele as compared to regular public transport companies does not exclude it from the definition of a common carrier. 2 At this juncture, it is noteworthy that the percentage tax imposed under Section 117 of the Tax Code of 1997 pertains only to transportation contractors engaged in the business of transporting passengers. In other words, carriage of goods and cargoes of a transportation contractor are not subject to percentage tax, rather to VAT imposed under Section 108 of the same Code. In view of all the foregoing, this Office is of the opinion and so holds that your company, PEJG, is subject to the three percent (3%) tax as a transportation contractor for the transport of passengers, and not to VAT, regardless of whether your gross annual receipts derived as such exceeds the P550,000.00 threshold, pursuant to Section 109(j) and (z) in relation to Section 117 of the Tax Code of 1997. (BIR Ruling No. 086-99 dated July 1, 1999) CSIDTc This ruling is issued on the basis of the foregoing facts as represented. However, if upon investigation it shall be disclosed or discovered that the facts are different, then this ruling shall be without force and effect insofar as the herein parties are concerned. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal and Inspection Group Footnotes 1. First Philippine Industrial Corporation vs. Court of Appeals , G.R. No. 125948, December 29, 1998. 2. Ibid .