VAT Ruling No. 056-98

December 2, 1998 VAT RULING NO. 056-98 119-000-00-056-98 Laguna & Quezon Cable TV Operators c/o Mr. Adolfo I. Gabriel No. 18 V. Kalaw St., Tierra Bella Subd. Quezon City Attention: Dr . Bernardino H . Bailon and Mr . Rolando B . Cabreira Gentlemen : This refers to your letters dated March 26, 1998 and April 29, 1998 representing that you are a group of Cable TV operators from the provinces of Laguna and Quezon; that you are holders of franchises and grantees of Provisional/Certificates of Authority to Operate Cable TV granted by the National Telecommunications Commission; that Cable TV operation in the Philippines is governed by Executive Order No. 205; that said executive order effectively classifies Cable TV operation under the category of broadcast media; that under Administrative Order (sic) No. 6-97, radio and TV broadcasting station with gross revenue of not more than Ten Million pesos for the preceding year shall not be subject to ten percent (10%) value added tax but to a franchise tax of 3%; and that in a conference held in this Office, you orally represented that your individual annual sales for the preceding year do not exceed P10,000,000.00. Based on the foregoing, you are requesting for a ruling to the effect that small Cable TV operators in Laguna and Quezon with annual sales of not more than P10,000,000.00 are exempt from the 10% VAT. In reply, please be informed that as grantees of certificates of authority to operate Cable TV issued by the National Telecommunications Commission pursuant to Executive Order No. 205, your firms belong to the category of radio and television broadcasting companies referred to under Section 119 of the Tax Code of 1997, which provides, viz "SEC. 119. Tax on Franchises. Any provision of general or special law to the contrary notwithstanding, there shall be levied, assessed and collected in respect to all franchises on radio and/or television broadcasting companies whose annual gross receipts of the preceding year does not exceed Ten Million pesos (P10,000,000), subject to Section 236 of this Code, a tax of three percent (3%) . . . on the gross receipts derived from the business covered by the law granting the franchise: Provided , however , That radio and television broadcasting companies referred to in this Section shall have the option to be registered as value-added taxpayers and pay the tax due thereon: Provided , further , That once the option is exercised, it shall not be revoked." xxx xxx xxx Such being the case, your members, who are holders of certificates of authority to operate a Cable TV network (the operation of which is regulated by Executive Order No. 205 signed by then President Corazon C. Aquino on June 30, 1987) with annual gross receipts for the preceding year of not more than P10,000,000.00, are subject to three percent (3%) franchise tax on gross receipts derived from the business covered by the law granting the franchise and, accordingly, they should be registered as non-VAT taxpayers. The Tax Code, however, gives them the option to be registered as VAT taxpayers and pay the value added tax provided that once the option is exercised, the same shall not be revoked. Corollarily, whenever the annual gross receipts for the preceding year shall exceed P10,000,000.00, the Cable TV operator has no other alternative but to register as a VAT taxpayer and pay the 10% VAT imposed under Section 108 of the Tax Code of 1997. LibLex This ruling is based on the foregoing facts as represented. If, however, it will be disclosed in an investigation that the facts are different, then this ruling shall be considered null and void. Very truly yours, (SGD.) BEETHOVEN L. RUALO Commissioner of Internal Revenue