VAT Ruling No. 056-92

April 28, 1992 VAT RULING NO. 056-92 NIRC Sec. 103 (U) Precedent Ruling 515-88 MEMORANDUM FOR: The Chief VAT Division It is stated that National Steel Corporation (NASCOR) is a registered pioneer enterprise granted and in still enjoying certain tax incentives under PD No. 1789 known as the Omnibus Investment Code of 1981. From January 1, 1988 up to December 31, 1990, NASCOR was enjoying partial exemption from VAT under the following gradually diminishing rates of exemption: 1988 75% exempt 1989 75% exempt 1990 50% exempt In view of their partial exemption from VAT under the BOI Investment Code which is also recognized under Section 103(u) of the Tax Code, NASCOR computed output taxes on all its local sales to the extent of only 25% (in 1988 and 1989) and 50% (in 1990). The question is whether the exempt portion of NASCOR's local sales by virtue of its registration with BOI under PD 1789 shall be considered, for VAT purposes, as falling under Sec. 103(u) of the Tax Code and as such input tax credits on purchases by registered pioneer enterprises should be subjected to allocation based on the taxable portion of its registered activities. Please be informed that pursuant to Sec. 103(u) of the Tax Code as amended by E.O. 273, NASCOR, on the basis of its registration with the BOI, can still avail of the tax credit privileges under PD 1789 (Omnibus Investment Code of 1981); to wit: 1988 75% exempt 1989 75% exempt 1990 50% exempt Corollary to the above, the apportionment of creditable input tax is as follows: The input taxes on its purchases of goods and services shall be available on the basis of the proportionate taxability of the transaction. For this, only 25% of the total input taxes for 1988 and 1989, and 50% of the total input taxes for 1990 shall be creditable against the allowed output tax. TDcHCa This finds support in VAT Ruling No. 515-88 dated November 10, 1988, and RAMO Nos. 1-90 and 1-91 which state that "if the taxpayer enjoys exemption on its sales of goods and services under special laws, he is only entitled to input tax credits equivalent to his level of exemption in the year of sale". JOSE U. ONG Commissioner of Internal Revenue By: (SGD.) EUFRACIO D. SANTOS Deputy Commissioner Officer-in-Charge