VAT Ruling No. 045-99

April 8, 1999 VAT RULING NO. 045-99 Section 106 000-00 045-99 Citimotors, Inc. Las Pias Alabang-Zapote Road Pamplona, Las Pias Attention: Mr . John M . Joseph Sales Manager Gentlemen : This refers to your letter dated March 15, 1999 requesting, in effect, for the exemption from Ad Valorem Tax as well as the VAT zero-rating of your proposed sale of automobiles to Subic Bay Metropolitan Authority (SBMA) comprising of one (1) unit Space Gear 2.5 Turbo Diesel and 3 units L200 Double Cab 4 x 4. In reply, please be informed as follows: 1. SBMA may enjoy exemption from ad valorem tax on its purchase of vehicles pursuant to Section 149 of the Tax Code of 1997 which provides that "(A)utomobiles acquired for use by persons or entities operating, within the freeport zone shall be exempt from excise tax . . ." It is our opinion that such privilege applies not only to tax-exempt entities inside the zone. This view is bolstered by a provision in the said Section which provides that "In the case of personally-owned vehicles of residents, including leaseholders of residences inside the freeport zone, the use of such vehicles outside of the freeport zone shall be deemed an introduction into the Philippine customs territory, and such introduction shall be deemed an importation into the Philippines and shall subject such vehicles to Customs duties, taxes and charges, including excise tax due on such vehicle." Thus, such tax exemption privilege applies in general to all persons and entities residing or located within the freeport zone, but subject to the following restrictions: a) the automobiles shall be used only within the freeport zone and may be used outside the zone for such periods as may be prescribed by the Departments of Finance and Trade and Industry, the Bureau of Customs and the Freeport authorities, which in no case shall exceed fourteen (14) days per month; and b) the use of such vehicles outside of the freeport zone in excess of the allowable period, shall be deemed an introduction to the Philippine customs territory, and such introduction shall be deemed an importation into the Philippines and shall subject such vehicles to customs duties, taxes and charges. including excise tax due on such vehicle. 2. With respect to your request for the zero-rating of your automobile sales to SBMA, we regret to deny your request for the reason that the transaction is not among those transactions considered export sales under Section 106(A)(9)(a) of the Code. It should be stressed that SBMA is not an export producer contemplated within the meaning of the law and regulations for which the privilege of VAT zero-rating is accorded. On the contrary, SBMA is a government-owned and -controlled corporation which does not enjoy tax exemption privileges under the Code. (BIR Ruling No. DA-036-99 dated January 20, 1999). cdll Very truly yours, (SGD.) BEETHOVEN L. RUALO Commissioner of Internal Revenue