VAT ON

FRANCHISE
GRANTEES
FRANCHISE
 A privilege granted or sold, such as
to use a name or to sell products or
services.
 A license from the owner of a
trademark or Trade Name permitting
another to sell a product or service
under that name or mark
RULE ON FRANCHISE
GRANTEES
GENERAL RULE: The services of Franchise Grantees are subject to 12% VAT in lieu of
franchise tax
EXCEPT: (Sec 119, NIRC)
 Gas and water utilities
 2% franchise tax

 For radio and/or television broadcasting whose annual gross receipts of the preceding year do
not exceed 10M pesos
 Subject to Sec 236 of NIRC
 3% franchise tax
VAT ON FRANCHISE GRANTEES OF
TELEPHONE AND TELEGRAPH DERIVED
FROM….
 Franchise Grantees of telephone and telegraph shall be subject to VAT on their gross receipts
derived from their:
 Telephone
 Telegraph
 Telewriter Exchange
 Wireless and other communication equipment services

FOR AMOUNTS RECEIVED FOR OVERSEAS DISPATCH/MESSAGE/CONVERSATION

ORIGINATING FROM THE PHILIPPINES:
 Subject to the Percentage Tax in Sec 120
 10% of amount paid for such services
SEC. 4.108-3(H)
Services of Franchise Grantees of telephone and telegraph, radio and/or television
broadcasting, toll road operations and all other franchise grantees, except gas and water
utilities, shall be subject to VAT in lieu of franchise tax, pursuant to Sec. 20 of RA No.7716,
as amended. However, franchise grantees of radio and/or television broadcasting whose
annual gross receipts of the preceding year do not exceed Ten Million Pesos (P
10,000,000.00) shall not be subject to VAT, but to the three percent (3%) franchise tax
imposed under Sec. 119 of the Tax Code, subject to the optional registration provisions under
Sec. 9.236-1(c) hereof. Likewise, franchise grantees of gas and water utilities shall be subject
to two percent (2%) franchise tax on their gross receipts derived from the business covered by
the law granting the franchise pursuant to Sec. 119 of the Tax Code. Gross receipts of all
other franchisees, other than those covered by Sec. 119 of the Tax Code, regardless of how
their franchises may have been granted, shall be subject to the 10% VAT imposed under Sec.
108 of the Tax Code. This includes among others, the Philippine and Amusement
Gaming Corporation (PAGCOR), and its licensees or franchisees. Franchise grantees of
telephone and telegraph shall be subject to VAT on their gross receipts derived from their
telephone, telegraph, telewriter exchange, wireless and other communication equipment
services. However, amounts received for overseas dispatch, message, or conversation
originating from the Philippines are subject to the percentage tax under Sec. 120 of the Tax
Code and hence exempt from VAT
WHAT HAPPENED IN PAGCOR
VS BIR?
 PD No 1067-B
 PD 1869
 NOT LIABLE for any tax, income or otherwise, except the 5% gross
revenue earnings derived by the corporation from its operation under the
franchise
 NIRC Sec 27 (c)
 Exempted PAGCOR, GSIS, SSS, PHIC, PCSO from paying Corporate
Income Tax
 RA 9337
 Excluded PAGCOR from exemption

 Sec. 4. 108-3 (h)

IS PAGCOR EXEMPT FROM CORPORATE TAX
AND VAT FOLLOWING THE ENACTMENT OF RA
9337?
RULING:
NOT EXEMPT FROM CORPORATE INCOME, BUT
EXEMPT FROM VAT
PAGCOR EXEMPT FROM VAT
The Court holds that the provision subjecting PAGCOR to
10% VAT is invalid for being contrary to R.A. No. 9337.
Nowhere in R.A. No. 9337 is it provided that petitioner can
be subjected to VAT. R.A. No. 9337 is clear only as to the
removal of petitioner's exemption from the payment of
corporate income tax, which was already addressed above
by this Court.
PAGCOR’S VAT EXEMPTION
THOROUGHLY DISCUSSED IN
CIR VS ACESITE
“There is no distinction on whether the taxes are
direct or indirect…by extending the tax exemption to
entities or individuals dealing with PAGCOR in
casino operations, it is exempting PAGCOR from
being liable to indirect taxes.”