Income Tax Exemption does not Extend to VAT

Q: Will a non-stock, non-profit corporation under Section 30 of the Tax Code be exempt from payment of VAT?

A: No. A corporation organized for charitable purposes as contemplated under Section 30 of the Tax Code is exempt from the payment of income tax on income received by it as such organization. However, the tax exemption granted to it as a non-stock, non-profit corporation covers only income taxes for which it is directly liable.

It should be noted that VAT is an indirect tax payable by the seller and not by the purchaser of goods. Being an indirect tax, it can be shifted or passed on to the buyer/purchaser, transferee or lessee of the goods, properties or services. Once shifted to the buyer/customer as an addition to the cost of goods or services sold, it is no longer a tax but an additional cost which the buyer/customer has to pay in order to obtain the goods or services.

The shifting of the VAT to a tax-exempt organization does not make it the person directly liable and therefore, said organization cannot invoke its tax exemption privilege under Section 30 (E) of the Tax Code to avoid the passing on or shifting of the VAT. Hence, a charitable organization exempt from tax under Section 30 of the Tax Code, the acquisition of equipment shall nevertheless be subject to the 12% VAT pursuant to Section 108 of the said Code, as amended by Republic Act No. 9337.   

 (BIR Ruling [DA-(VAT-019) 119-10], July 9, 2010)