VAT Ruling No. 068-91

July 5, 1991 VAT RULING NO. 068-91 Joaquin Cunanan & Company 8th Floor, BA-Lepanto Building 8747 Paseo de Roxas, Makati Metro Manila Attention: Mr . Jose S . Tayag, Jr . Gentlemen : This refers to your letters dated September 17 and 21, 1990, for and in behalf of your client, BRISTOL LABORATORIES (PHILIPPINES), INC. The issue raised is, whether your client, in computing its taxable sales for value added tax purposes, may be allowed to deduct the following types of sales discounts as denominated in your client's VAT sales invoices issued: (a) 4% discount, if paid upon delivery (b) 3% discount, if paid within seven days after delivery. Please be informed that, in case of sales of goods, the 10% VAT is based on "the gross selling price or gross value in money of the goods sold, bartered or exchanged". (Sec. 100, NIRC) However, if sold at a discount, sales discounts may be deducted from the gross selling price, provided such discounts are "granted and indicated in the invoice at the time of sale". (Sec. 100(d)(3), NIRC) This law is implemented by Section 6(c)(A) of Revenue Regulations No. 5-87, otherwise known as the VAT Revenue Regulations, as follows: cdll "In computing the taxable base during a quarter, the following shall be allowed as deductions from gross selling price or gross receipts: (A) Discounts granted and determined at the time of sale which are expressly indicated in the invoice, and the amount thereof forms part of the gross sales duly recorded in the books of accounts. Discounts conditioned upon the subsequent happening of an event or fulfillment of certain conditions , such as prompt payment or attainment of sales goals, shall not be allowed as deductions . (EMPHASIS SUPPLIED) In short, in general, the taxable base is the gross selling price of goods sold. While the law allows deduction of discounts from gross sales, such discounts must not be conditioned upon the subsequent happening of an event or fulfillment of certain conditions. It follows that discounts given but the enjoyment of which is conditioned upon the subsequent happening of an event or the fulfillment of certain conditions imposed, may not be deducted from gross sales for VAT purposes. The aforementioned "4% discount, if paid upon delivery" means the buyer shall be entitled to 4% discount provided he pays the purchase price upon delivery, to him, of the goods purchased. Thus, if the buyer fails to pay upon delivery, he loses the benefit of discount and, therefore, must pay for the gross selling price of the goods purchased. On the other hand, the term "3% discount, if paid within seven days after delivery" simply means the buyer shall be entitled to a 3% discount provided he pays within seven days after delivery, to him, of the goods purchased. Otherwise, he loses benefit of 3% discount and, therefore, must pay for the gross selling price of the goods purchased. It follows, the buyer's enjoyment of discount depends upon the happening of a future event, i.e., he may or he may not enjoy the privilege of a discount depending on whether he is able to meet the condition as to the time he actually pays for his purchase. This being so, the said discounts are not deductible from gross sales, pursuant to the provisions of Section 100(d)(3), NIRC, as implemented by Section 6(c)(A) of Revenue Regulations No. 5-87. Very truly yours, JOSE U. ONG Commissioner of Internal Revenue