VAT Ruling No. 062-01

September 21, 2001 VAT RULING NO. 062-01 R.A. 7653 000-00 Bangko Sentral Ng Pilipinas (BSP) Banknotes & Securities Printing Department East Avenue, Diliman, Quezon City Attention: Dir. Nestor D. Garcia Gentlemen : This refers to your letter dated 24 May 2001 concerning your request for refund of the amount of P753,902.11, representing the 6% creditable value-added tax (VAT) which the Social Security System (SSS) withheld from its payments of your invoice billings for services rendered. It is represented that the BSP prints checks for use by the SSS; that for the period from April 1999 to March 2000, the SSS deducted and withheld the sum of P753,902.11 from its payments of your invoice billings for services rendered, and remitted the same to the BIR; that, according to the SSS, it is exempt from VAT pursuant to Section 16 of R.A. No. 8282, hence, the same constituted as erroneous VAT payment and, therefore, should be refunded by the BIR. In reply, please be informed that the tax exemption privilege of the BSP expired after the lapse of five (5) years from the approval of R.A. No. 7653, otherwise known as the New Central Bank Act, which created the BSP. This law was approved on 14 June 1993, hence, BSP's tax exemption expired on 14 June 1998, as follows: "SEC. 125. Tax Exemptions. The Bangko Sentral shall be exempt for a period of five (5) years from the approval of this Act from all national, provincial, municipal and city taxes, fees, charges and assessments. "The exemption authorized in the preceding paragraph of this section shall apply to all property of the Bangko Sentral, to the resources, receipts, expenditures, profits and income of the Bangko Sentral, as well as to all contracts, deeds, documents and transactions related to the conduct of the business of the Bangko Sentral: Provided, however, That said exemptions shall apply only to such taxes, fees, charges and assessments for which the Bangko Sentral itself would otherwise be liable, and shall not apply to taxes, fees, charges, or assessments payable by persons or other entities doing business with the Bangko Sentral: Provided, further, That foreign loans and other obligations of the Bangko Sentral shall be exempt, both as to principal and interest, from any and all taxes if the payment of such taxes has been assumed by the Bangko Sentral." Accordingly, the BSP was already subject to VAT during the period from April 1999 to March 2000. The tax exemption privilege of the SSS under Section 16 of R.A. No. 8282, which amended R.A. No. 1161, otherwise known as the Social Security Law, and which was enacted into law on 01 May 1997, reads: "SEC. 16. Exemption from Tax, Legal Process and Lien. All laws to the contrary notwithstanding, the SSS and all its assets and properties, all contributions collected and all accruals thereto and income or investment earnings therefrom, as well as all supplies, equipment, papers or documents shall be exempt from any tax, assessment, fee, charge, or customs or import duty, and all benefit payments made by the SSS shall likewise be exempt from all kinds of taxes, fees or charges and shall not be liable to attachments, garnishments, levy or seizure by or under any legal or equitable process whatsoever, either before or after receipt by the person or persons entitled thereto, except to pay any debt of the member to the SSS. No tax measure of whatever nature enacted shall apply to the SSS, unless it expressly revokes the declared policy of the State in Section 2 hereof granting tax-exemption to the SSS. Any tax assessment imposed against the SSS shall be null and void." The above quoted tax exemption privilege of the SSS is limited only to direct taxes or such taxes for which it would otherwise be directly liable. It does not embrace indirect taxes. The VAT is a tax on the person who, in the course of trade or business, sells, barters, exchanges, leases goods or properties, renders services, and on any person who imports goods, pursuant to Section 105 of the National Internal Revenue Code of 1997, as follows: "SEC. 105. Persons Liable . Any person who, in the course of trade or business, sells, barters, exchanges, leases goods or properties, renders services, and any person who imports goods shall be subject to the value-added tax (VAT) imposed in Sections 106 to 108 of this Code. "The value-added tax is an indirect tax and the amount of tax may be shifted or passed on to the buyer, transferee or lessee of the goods, properties or services. This rule shall likewise apply to existing contracts of sale or lease of goods, properties or services at the time of the effectivity of Republic Act No. 7716. "xxx xxx xxx." Even if the cost of the VAT is shifted or passed on to the buyer as part of the seller's invoice billing, it is not, however, a tax on the buyer. In the hands of the buyer, it loses the character of a tax. To such buyer, it is treated as a mere expense or a part of the purchase price. ". . . the persons liable for the payment of the value-added tax are not the buyers/purchasers but the sellers/importers of goods and those performing services for a fee. However, since the value-added tax is an indirect tax, it can be shifted to the customer. Once shifted to the customer as addition to the cost of goods sold, it is no longer a tax but an additional cost which the customer has to pay in order to obtain the goods. (Philippine Acetylene Co. vs. Commissioner of Internal Revenue, G.R. No. L-19707, August 17, 1967) The shifting of the value-added tax to you does not make you the person directly liable therefor; hence, you cannot invoke your tax exemption privilege to avoid the passing on or shifting of the VAT to you. (Unnumbered BIR Ruling dated April 30, 1988) . . . " (BIR RULING No. 243-88, 06 June 1988) Section 114 (C), NIRC of 1997, requires withholding of the creditable VAT on purchases made by any governmental entity from its supplier of goods, property or services subject to VAT, as follows: "(C) Withholding of Creditable Value-added Tax . The Government or any of its political subdivisions, instrumentalities or agencies, including government-owned or -controlled corporations (GOCCs) shall, before making payment on account of each purchase of goods from sellers and services rendered by contractors which are subject to the value-added tax imposed in Sections 106 and 108 of this Code, deduct and withhold the value-added tax due at the rate of three percent (3%) of the gross payment for the purchase of goods and six percent (6%) on gross receipts for services rendered by contractors on every sale or installment payment which shall be creditable against the value-added tax liability of the seller or contractor: Provided, however, That in the case of government public works contractors, the withholding rate shall be eight and one-half percent (8.5%): Provided, further, That the payment for lease or use of properties or property rights to nonresident owners shall be subject to ten percent (10%) withholding tax at the time of payment. For this purpose, the payor or person in control of the payment shall be considered as the withholding agent. "xxx xxx xxx." This Office finds no statutory basis why BSP's sale of service to the SSS may be legally treated exempt from the VAT. Consequently, the aforementioned creditable VAT which, as represented, was deducted and withheld by the SSS from your invoice billings and remitted to the BIR, pursuant to Section 114 (C) of the NIRC of 1997, may not legally be treated as having been paid erroneously. Hence, we regret to inform that your aforesaid request for refund may not be granted for lack of legal basis. Very truly yours, (SGD.) RENE G. BAEZ Commissioner of Internal Revenue