VAT Ruling No. 067-02

October 8, 2002 VAT RULING NO. 067-02 R.A. 8761, R.A. 9010 000-00 San Buenaventura and Co., CPAs 3rd Floor, 332 Mile Long Specialty Theme Center Amorsolo cor. Javier Streets Legaspi Village, Makati City Attention: Mr. Nestor C. Velasco Audit Manager Gentlemen : This refers to your letter dated October 25, 2001, requesting, in behalf of your client, GREATWAY INTERNATIONAL FREIGHT FORWARDERS, INC. (GREATWAY), clarification on the implementation of Republic Act No. 8761, as amended by R.A. 9010. It is represented that your client is engaged in rendering two types of services, namely: (a) freight forwarding; and (b) customs brokerage. In reply, please be informed that Sections 1, 3 and 4 of R.A. 8761 provides, thus: "SEC. 1. Section 5 of Republic Act No. 8424 is hereby amended to read as follows: "Sec. 5. Transitory Provisions. Effectivity of the Imposition of VAT on Certain Services The imposition of the value-added tax on the following services shall take effect on January 1, 2003: xxx xxx xxx (c) Services rendered by stock, real estate, commercial, customs and immigration brokers. Provided , That, for the year beginning January 1, 2001 up to December 31, 2002, the aforementioned brokers shall, in lieu of the value-added tax prescribed under Title IV of the National Internal Revenue Code of 1997, be subject to a tax equivalent to seven percent (7%) based on gross receipts from brokering services which shall be paid in the manner and in accordance with the provisions of Title V of the said Code. Provided, further, That beginning January 1, 2003, the aforementioned brokers shall be subject to the value-added tax in lieu of the seven percent (7%) tax." "Sec. 3. Repealing Clause. All laws, decrees, orders, issuances, rules and regulations and other issuances or parts thereof inconsistent with this Act are hereby repealed or modified accordingly." "Sec. 4. Effectivity. This Act shall take effect on January 1, 2000." Likewise, Sections 1, 3 and 4 of R.A. 9010 provides, thus: "SEC. 1. Section 5 of Republic Act No. 8424, as amended by Republic Act No. 8761, is hereby further amended to read as follows: "Sec. 5. Transitory Provisions. Effectivity of the Imposition of VAT on Certain Services The imposition of the value-added tax on the following services shall take effect on January 1, 2003: xxx xxx xxx (c) Services rendered by stock, real estate, commercial, customs and immigration brokers. Provided, That for the years beginning January 1, 2001 up to December 31, 2002, the aforementioned brokers shall in lieu of the value-added tax prescribed under Title IV of the National Internal Revenue Code of 1997, be subject to a tax equivalent to seven percent (7%) based on gross receipts from brokering services which shall be paid in the manner and in accordance with the provisions of Title V of the said Code. Provided, further, That beginning January 1, 2003, the aforementioned brokers shall be subject to the value-added tax in lieu of the seven percent (7%) tax." "Sec. 3. Repealing Clause. All laws, decrees, orders, issuances, rules and regulations and other issuances or parts thereof inconsistent with this Act are hereby repealed or modified accordingly." "Sec. 4. Effectivity. The effectivity of this Act shall retroact to January 1, 2001." In relation to the foregoing, Sec. 128(A)(1) of Title V of the Tax Code of 1997 provides, thus: "Sec. 128. Returns and Payment of Percentage Taxes. (A) Returns of Gross Sales, Receipts or Earnings and Payment of Tax. (1) Persons Liable to Pay Percentage Taxes. Every person subject to the percentage taxes imposed under this Title shall file a quarterly return of the amount of his gross sales, receipts or earnings and pay the tax due thereon within twenty-five (25) days after the end of each taxable quarter: . . . " Likewise, Sec. 109 (last paragraph) of the same Code provides in part, thus: "Sec. 109. Exempt Transactions. The following shall be exempt from the value-added tax: xxx xxx xxx (j) Services subject to percentage tax under Title V; xxx xxx xxx The foregoing exemptions to the contrary notwithstanding, any person whose sale of . . . services which are otherwise not subject to VAT, but who issues a VAT invoice or receipt therefor shall, in addition to his liability to other applicable percentage tax, if any, shall be liable to the tax imposed in Section 106 or 108 without the benefit of input tax credit . . . " With respect to registration requirements, Sec. 236 of the Tax Code of 1997 provides in part, thus: "Sec. 236. Registration Requirements. xxx xxx xxx (C) Registration of Each Type of Internal Revenue Tax. Every person who is required to register with the Bureau of Internal Revenue under Subsection (A) hereof, shall register each type of internal revenue tax for which he is obligated, shall file a return and shall pay such taxes, and shall update such registration of any changes in accordance with Subsection (E) hereof. (Emphasis supplied.) xxx xxx xxx "(E) Other Updates. Any person registered in accordance with this Section shall, whenever applicable, update his registration information with the Revenue District Office where he is registered, specifying therein any change in tax type and other taxpayer details." "(F) Cancellation of Registration. The registration of any person who ceases to be liable to a tax type shall be canceled upon filing with the Revenue District Office where he is registered an application for registration information update in a form prescribed therefor. xxx xxx xxx" Accordingly, for the taxable years from January 1, 2000, up to December 31, 2002, all stock, real estate, commercial, customs and immigration brokers shall, in lieu of the VAT, be liable to a tax equivalent to 7%, of their gross receipts from brokering services, and should file the corresponding return therefor and pay the tax due thereon. In case a VAT invoice or receipt was issued therefor, such broker shall be liable, in addition to the percentage tax of 7%; to the VAT thereon without the benefit of any input tax credit; the same may, however, request for an abatement of increments arising therefrom pursuant to Sec. 204(B) of the Tax Code of 1997, as implemented by Revenue Regulations No. 13-2001. On the other hand, if such broker issued therefor a non-VAT invoice but nevertheless paid the VAT thereon, the same shall still be liable to the percentage tax of 7%; but without prejudice to the right to file a written claim for a refund of the VAT erroneously paid within two years after payment thereof. In both cases, the VAT on their purchases of goods and services shall form part of the cost of such goods or services. All such brokers are required to register each type of internal revenue tax for which they are obligated, and shall update such registration of any changes with the Revenue District Office where he is registered. Hence, as in the case of GREATWAY, it is possible for a taxpayer to be both a VAT-entity (freight forwarding) and a non-VAT-entity subject to percentage taxes (customs brokerage). This, ruling is being issued based on the foregoing facts as represented. If, upon investigation, it will be discovered that the facts are different then this ruling shall be considered null and void. Very truly yours, (SGD.) GUILLERMO L. PARAYNO, JR. Commissioner of Internal Revenue