VAT Ruling No. 053-00

November 17, 2000 VAT RULING NO. 053-00 Sec. 108 BIR Ruling 6-96 Crop Insurance Corporation L & G Bldg., McArthur Highway Dolores, San Fernando Pampanga Attention: Mr. Eladio C. Battung, CESO IV VP-Luzon Gentlemen : This refers to your letter dated November 16, 1999 requesting for a ruling to the effect that premiums paid by farmers for their crop insurance are exempt from tax. It is represented that the Philippine Crop Insurance Corporation (PCIC) is authorized by P.D. 1467, as amended by R.A. 8175 to insure agricultural crops including livestock; that from the start of its operations in 1981, premiums paid by farmers have been exempt from tax; that when R.A. No. 8424, otherwise known as the "Tax Reform Act of 1997", was enacted and promulgated, queries have reached your sectoral office whether crop insurance shall continue to be exempt; that your office, the Regional Group Head-Luzon (ORGH-Luzon) has five regional offices under its supervision; that procedurally, the Regional Managers seek definite course or aggressive position specially on debatable issues; and that you hold the view that premiums paid by farmers for their crop insurance are exempt from the ten percent (10%) value-added tax imposed under Section 108 of the Tax Code as well as from the five percent (5%) percentage tax imposed under Section 123 of the same Code. In reply, please be informed that pursuant to Section 108(A) of the National Internal Revenue Code (NIRC), as amended by R.A. 7716, and as renumbered by R.A. No. 8424, "crop insurances" shall not be subject to the 10% VAT. Section 108 (A) of the Tax Code of 1997 provides, as follows: "SEC. 108. Value-Added Tax on sale of Services and Use or Lease of properties. "(A) Rate and Base of Tax - There shall be levied assessed and collected, a value-added tax equivalent to ten percent (10%) of gross receipts derived from the sale or exchange of services, including the use or lease of properties. "The phrase 'sale or exchange of services' means the performance of all kinds of services in the Philippines for others for a fee, remuneration or consideration including those performed or rendered by construction and service contractors: stock, real estate, commercial, customs and immigration brokers; . . . and non-life insurance companies (except their crop insurances) including surety, fidelity, indemnity and bonding companies; and similar services regardless of whether or not the performance thereof calls for the exercise or use of the physical or mental faculties, . . . " Accordingly, your receipt of premiums from your "crop insurance" business is exempt from the 10% VAT imposed under Section 108(A) of the said NIRC. Moreover, the percentage tax imposed under Section 123 of the said NIRC is only applicable to "life insurance business". It does not apply to "non-life insurance business." Hence, your crop insurance business, which is a non-life insurance business, is not subject to the percentage tax imposed under the aforesaid Section 123. This ruling is issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then ruling shall be considered null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) LILIAN B. HEFTI Deputy Commissioner Legal & Inspection Group