Sale of "textbooks and teacher's manuals" to public schools.

May 8, 2002 VAT RULING NO. 033-02 Sec. 103 (y) BIR Ruling No. 059-96 Philippine Educational Publishers' Association (PEPA) 84 P. Florentino St.,Sta. Mesa Heights Quezon City Attention: Atty. Dominador D. Buhain, President SUBJECT : Sale of "textbooks and teacher's manuals" to public schools. Gentlemen : This refers to your letters, dated November 24, 2001 and January 10, 2002, concerning your request for clarification whether the supply of " textbooks and teacher's manuals " to public schools is exempt from the 10% value added tax (VAT). Documents submitted with your letter of November 24, 2001 show that Rex Bookstore, Inc.,one of your members, sold " textbooks and teacher's manuals " to the Department of Education, Culture and Sports (DECS);that, the DECS wants to withhold from its payment to the said supplier " 1% contractor's tax and 3% VAT ;" that, however, you believe that sale of " textbooks and teacher's manuals " is exempt from the VAT, hence, your above request for clarification. In reply, please be informed that, among others, the following are exempt from the VAT under Section 103 (y), 1 National of Internal Revenue Code (NIRC), as amended by R.A. No. 8241, and as implemented by Section 4.103-1 (B)(y), Revenue Regulations No. 7-95, as amended by Revenue Regulations No. 06-97: "(y) Sale, importation, printing or publication of books and any newspaper, magazine, review or bulletin which appears at regular intervals with fixed prices for subscription and sale and which is not devoted principally to the publication of paid advertisements ;and "xxx xxx xxx." In BIR RULING No. 059-96, dated May 21, 1996, the Commissioner of Internal Revenue held: "In connection therewith, please be informed that pursuant to Section 12 of Republic Act No. 8047, the sale of books . . . including book publishing and printing as well as its distribution and circulation, shall be exempt from the coverage of the Expanded Value-Added Tax (EVAT) Law. Section 3(a) and (b) of R.A. No. 8047 provides that the term 'book' as defined by the United Nations Educational Scientific and Cultural Organization (UNESCO) is a printed non-periodical publication of at least forty-eight (48) pages, exclusive of cover pages ,published in the country and made available to the public. The term 'textbook' shall mean a book which is an exposition of generally accepted principles in one (1) subject, intended primarily as a basis for instruction in a classroom or pupil-book-teacher situation ." The word " Manual " means " a book that is conveniently handled; esp. HANDBOOK ." (Merriam Webster's Collegiate Dictionary, tenth edition) Accordingly, the aforementioned " textbooks and teacher's manuals " may legally be treated as " Books " provided they meet the above quoted statutory requirement under Section 3 (a) and (b), R.A. No. 8047, i.e., " at least forty-eight pages, exclusive of cover pages ." In the affirmative, the supply of the said " textbooks and teacher's manuals ," to the DECS, shall be VAT-exempt under Section 109 (y), NIRC of 1997, hence, also exempt from the 3% creditable VAT withholding otherwise prescribed under Section 114 (C), NIRC of 1997, as implemented by SECTION 4.114 (A), Revenue Regulations No. 02-98. The old "Contractor's Tax Law," old NIRC, has been repealed and replaced by the VAT law, effective January 1, 1998, pursuant to Executive Order No. 273, entitled "ADOPTING A VALUE-ADDED TAX, AMENDING FOR THIS PURPOSE CERTAIN PROVISIONS OF THE NATIONAL INTERNAL REVENUE CODE, AND FOR OTHER PURPOSES," which was promulgated by the President of the Philippines, in the exercise of her interim legislative power, on July 25, 1987, otherwise known as our first VAT Law. "...Moreover, the 3% contractor's tax has long been replaced by the 10% value-added tax imposed under Section 102 2 of the Tax Code as amended by Executive Order No. 273 effective January 1, 1988 .Accordingly, the collections and/or withholding of the 3% contractor's tax on the billings submitted in December, 1992 and March, 1993 but actually paid by the Department of Environment and Natural Resources (DENR) in January, 1993 and June, 1993, respectively, are without legal basis. (BIR RULING No. 010-94, Jan. 06, 1994) It appears, however, that the withholding of " 1% contractors tax " referred to in the copy of DECS Disbursement Voucher, which was submitted with your letter of November 24, 2001, actually pertained to the creditable withholding tax prescribed under Section 2.57.2 (N), Revenue Regulations No. 02-98, promulgated April 17, 1998, as amended by Revenue Regulations No. 06-2001, and as further amended by Revenue Regulations No. 12-2001, reading: HTacDS "(N) Income payments by government . Income payments, except any single purchase which is P10,000 and below, which are made by a government office, national or local, including government-owned or controlled corporations, on their purchases of goods from local suppliers One percent (1%);" Please be informed that the above quoted 1% creditable withholding tax is not a contractor's tax. It is, instead, an income tax withheld from the payee, by the government entity-payor, which shall be available as a credit against the payee's income tax liability when the latter files his periodic income tax return covering income payment received from such payor. Thus, the withholding by the DECS of this 1% creditable withholding tax is legal and proper. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, (SGD.) REN G. BAEZ Commissioner of Internal Revenue Footnotes 1. Now Sec. 109 (y), NIRC, as renumbered by R.A. 8424, known as the NIRC of 1997. 2. Now Sec. 108, NIRC, as renumbered by R.A. 8424.