VAT Ruling No. 078-02

November 20, 2002 VAT RULING NO. 078-02 109 VAT 029-98 Rex Book Store, Inc. 856 Nicanor Reyes, Sr. St. Sampaloc, Manila Attention: Mr. Juanito F. Fontelera Chairman Gentlemen : This refers to your letter dated July 28, 2000 requesting for a ruling on the following: 1. Whether or not Rex Book Store, Inc. is subject to value-added tax (VAT) on the sale of its books to DECS-Field offices and local government units; and 2. What taxes shall be imposed on the sale of its books and how to compute the same. It is represented that Rex Book Store, Inc. is duly accredited with the Department of Education, Culture and Sports (DECS) as supplier of its own published and printed books (textbooks, teacher's manuals and reference materials) the prices of which are also approved by DECS; that Section 109(m) of the 1997 Tax Code exempts from VAT the sale of its books; and that some DECS-Field offices and local government units (municipal, city and provincial) continue to impose VAT and therefore deduct straight 3%, some 3% x 10/11 based on the gross payment on the purchase of said books, in addition to other tax deductions like the 1% tax on income, while others impose a withholding tax of 2%. In reply, please be informed as follows: 1. Whether or not Rex Book Store, Inc. is subject to value-added tax (VAT) on the sale of its books to DECS-Field offices and local government units. Section 109(y) of the 1997 Tax Code provides, viz : "SEC. 109. Exempt Transactions. The following shall be exempt from the value-added tax: "xxx xxx xxx (y) Sale, importation, printing or publication of books and any newspaper, magazine, review or bulletin which appears at regular intervals with fixed prices for subscription and sale and which is not devoted principally to the publication of paid advertisements and; ..." Accordingly, Rex Book Store, Inc. is exempt from VAT on its sale, printing or publication of educational books. (VAT Ruling No. 029-98 dated September 17, 1998) Consequently, its sales of books to DECS-Field offices is not subject to the 3% withholding VAT required under Section 114(C) of the Tax Code of 1997. 2. What taxes shall be imposed on the sale of its books and how to compute the same. Pursuant to Section 2.57.2(E)(3)(f) of Revenue Regulations No. 6-2001, as amended, a creditable income tax at the rate of 2% on income payments to printers, bookbinders, lithographers and publishers except those principally engaged in the publication or printing of any newspaper, magazine, review or bulletin which appears at regular intervals, with fixed prices for subscription and sale, shall be withheld. Section 2.57.5(N) of Rev. Regs. No. 6-2001, as amended, provides that income payments, except any single purchase which is P10,000.00 and below, which are made by a government office, national or local, including government-owned or controlled corporations, on their purchases of goods from local suppliers are subject to the one percent (1%) creditable withholding tax. The tax is computed by multiplying the income payment by 2% or 1%,as the case may be. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered as null and void. Very truly yours, (SGD.) EDMUNDO P. GUEVARA Deputy Commissioner Legal & Inspection Group