VAT Ruling No. 056-02

September 12, 2002 VAT RULING NO. 056-02 Sec. 107 BIR Ruling Nos. 262-89, 110-91, DA-446-10-05-98 Our Lady of Victories Church 2 Cannon Road New Manila Quezon City Attention: Rev. Fr. Vicente A. Griego Parish Priest Gentlemen : This refers to your letter dated February 24, 2002 requesting for value-added tax (VAT) exemption on the purchase of labor and materials relative to the construction of Our Lady of Victories Church's (Church) sacristy. Based on the documents you have submitted to this Office, the Church contracted Greg Timbol Interiors (GTI) for the said construction at a total contract price of P214,690.00 exclusive of the value-added tax (VAT); that you have been advised by your lawyer that since the sacristy will be used directly and primarily for church worship and exercise of other religious activities, the Church is exempt from the payment of the required VAT subject to approval of the Commissioner of Internal Revenue; that a ruling has been previously issued to The Society of Saint Pius X granting exemption from the payment of income tax on income received by it as such organization. In reply, we regret to inform you that your request cannot be granted for lack of legal basis. The subject contract is not among those provided under Section 109 of the National Internal Revenue Code of 1997 (Code) as VAT-exempt transactions. The VAT is a tax on the person who sells, barters, exchanges, leases goods or properties, renders services, and on any person who imports goods pursuant to Section 105 of the Code. It is an indirect tax; which may be passed on or shifted to the buyer. Accordingly, GTI, if a VAT-registered taxpayer, may pass on the 10% VAT for its supply of labor and materials. Thus, while the Church is exempt from the payment of income tax on income received by it as a religious organization under Section 30 (E) of the Code, its exemption only covers income taxes for which it is directly liable. The exemption does not cover the VAT passed on by VAT-registered suppliers on the Church's purchases of goods and services. It is a well-settled principle in statutory construction that exemption from tax is strictly construed against the taxpayer and liberally in favor of the taxing authority. A taxpayer who claims an exemption must be able to justify by the clearest grant of organic or statute law its exemption from the payment of tax. An exemption from the common burden cannot be permitted to exist upon vague implication. Very truly yours, Commissioner of Internal Revenue By: (SGD.) EDMUNDO P. GUEVARA Deputy Commissioner Legal and Inspection Group