BIR erred in P22-M tax slap on Cebu hotel


THE Court of Tax Appeals (CTA) ordered the Bureau of Internal Revenue (BIR) that it cannot impose a P22-million tax against a posh hotel in Cebu province after it held that transaction with the Philippine Amusement and Gaming Corp. (Pagcor) is non-taxable.

The tax court’s Second Division granted the petition for review of Waterfront Mactan Casino Hotel, Inc. and denied the P22.64-million value-added tax (VAT) after the Supreme Court held that Pagcor transactions are “subject to zero-percent rate.”

The case stemmed when the BIR issued a preliminary assessment notice and collection against Waterfront for its deficient income tax, withholding tax on compensation and VAT for year 2006.

Waterfront argued that it initially charged Pagcor, which operates a casino in the hotel, with output tax. However, Pagcor did not pay since it said that it is VAT-exempt as stipulated in Presidential Decree 1869 or the Pagcor Charter.

The BIR insisted that according to Republic Act 9337, or the expanded VAT law, only four government instrumentalities are exempted from tax: the Government Service and Insurance System, the Social Security System, the Philippine Health Insurance Corp., and the Philippine Charity Sweepstakes Office.

“We cannot sustain respondent’s [BIR] position,” the tax appellate court ruled.

In a ponencia by Associate Justice Cielito Mindaro-Grulla, the court sided with the hotel since under the E-VAT law, it “does not include the removal of Pagcor’s exemption from the VAT coverage.”

“[The Pagcor charter] is a special law which decreed Pagcor’s exemption from the coverage of VAT and such exemption was extended to entities that have dealings and relations with it,” the court upheld.

Quoting the Pagcor charter, the court said that the gaming agency is exempt from assessment or collection of tax of whatever form be it national or local.

For this, the P22-million tax BIR is imposing on Waterfront should not be paid as it is an output tax that Pagcor should not really be paying all along.

The CTA added that the Supreme Court already established in Pagcor v. BIR, where the High Court ruled that Pagcor is non-taxable and it extends to its financial transactions.

“The Supreme Court has the last word on what the law is . . . It is the duty of lower courts to obey the decisions of the Supreme Court,” the decision read.

To discuss Pagcor’s unique situation “becomes an exercise in futility,” the tax court added.

“It becomes an unarguable fact that Pagcor is not liable to pay VAT and petitioner’s [Waterfront] transactions with Pagcor are subject zero-percent rate,” the court ruled.

For “lack of legal basis,” the VAT assessment of BIR issued to Waterfront for year 2006 should be cancelled.

Associate Justices Juanito Castañeda Jr. and Caesar Casanova concurred in the decision.


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