VAT Ruling No. 038-97

April 15, 1997 VAT RULING NO. 038-97 Sec. 100-33-96-038-97 Oriental Tin Can & Metal Sheet Mfg. General Luis St. Bo. Capri, Novaliches, Q.C. Attention: Ms . Rose S . Chua VP-Finance Gentlemen : This refers to your letter dated March 3, 1997 requesting for clarification on whether or not Dunlop Slazenger Philippines Inc., a Philippine Economic Zone Authority (PEZA) registered enterprise, is entitled to VAT zero-rating with respect to its purchases of supplies, spare parts of machinery, other than raw materials. aisadc It is represented that Oriental Tin Can & Metal Sheet Mfg. ("Oriental") is a VAT an Board of Investments registered firm transacting business with Dunlop Slazenger Philippines Inc. ("DSPI"), a Philippine Economic Zone Authority (PEZA) registered firm. DSPI then sent you an endorsement letter from PEZA directed to this Bureau concerning the VAT zero-rating of PEZA registered firms with respect to their transactions with local suppliers. As basis thereof, Article 17 (2) of Executive Order No. 226 (otherwise known as the Omnibus Investments Code of 1987) was cited. You now request for clarification on whether or not PEZA registered firms are entitled to VAT zero rating with respect to their purchases of supplies, spare parts of machinery, and other than raw materials. In reply, please be informed that under Section 24 of Republic Act No. 7916, otherwise known as the Special Economic Zone Act of 1993, businesses and enterprises within the ECOZONE as defined by Section 5 thereof shall, in lieu of paying local and national taxes, be liable to the payment of the five percent (5%) preferential tax rate based on gross income earned distributed as follows: (1) three percent (3%) to the national government; (2) one percent (1%) to the local government units affected by the declaration of the ECOZONE; and (3) one percent (1%) for the establishment of a development fund to be utilized for the development of municipalities outside and contiguous to each ECOZONE. Section 102 (a) of the Tax Code as amended provides that sales of good and services to persons or entities whose exemption under special laws, (e.g. duly registered and accredited enterprises of the PEZA under R.A. 7916) or international agreements to which the Philippines is a signatory effectively subjects the supply of such goods or services to zero rate. Such being the case, since R.A. 7916 is a special law which grants exemptions from national taxes to PEZA-registered businesses establishments operating within the ECOZONE, except payment of the preferential tax rate of 5% on gross income earned, the sales of goods and services by VAT-registered enterprises in the Customs Territory like Oriental Tin Can & Metal Sheet Mfg. shall be effectively zero-rated (VAT Ruling No. 33-96 dated November 11, 1996). LibLex It shall be understood that the VAT-registered enterprises shall apply with the Revenue District Officer concerned having jurisdiction over their principal place of business for the effective zero-rating of their sales of goods and services to PEZA-registered enterprises within the ECOZONE pursuant to Revenue Regulations No. 7-95 as amended. Without an approved application for zero-rating, the transactions otherwise entitled to zero-rating shall be considered exempt. This ruling is being issued on the basis of the foregoing fact 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, ALICIA L. TOMACRUZ Head Revenue Executive Assistant Chairman, VAT Review Committee