Published 03 August 2018, The Daily Tribune

Advances in technology have completely transformed the way information is produced, created, circulated, disseminated, viewed and consumed. One such example is the increasing popularity nowadays of electronic books or eBooks and other digital publications (collectively, “eBooks” for brevity).

Certainly, eBooks have advantages over printed books which make them more preferable than the latter.  For one, production of eBooks does not necessitate sacrifice of trees; hence, environment/eco-friendly.  In addition, eBooks are not only light and portable but also more flexible than printed books (i.e., the reader can conveniently modify the font size to make reading easier on the eyes; easily mark or highlight passages, save pages and search text; and, has zero risks of slipping bookmarks or paper cuts).

But even with all the above-mentioned advantages, not a few say that just as stairs cannot be rendered obsolete by elevators, printed books cannot be totally outdated by eBooks.  There will always be folks who would still prefer the simple joy of holding and reading a book, with dog-eared pages and all.

And tax-wise, particularly, with regard to value-added tax (“VAT”), printed books are still preferable than eBooks.

Under Section 109(1)(R) of the Tax Code, as amended by TRAIN law, and in relation with RMC No. 75-2012, the sale, importation, printing or publication of books and any newspaper, magazine, review or bulletin, which appears at regular intervals with fixed prices for subscription/sale and which is not devoted principally to the publication of paid advertisements enjoys VAT exemption.

It must be noted, however, that VAT is an indirect tax payable by the seller and not the purchaser of goods. Being an indirect tax, it can be shifted or passed on to the buyer/purchaser of the goods. 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. Consequently, the seller/publishing corporation, while exempt from VAT on its sale, importation, printing or publication of books and any newspaper, magazine, review or bulletins cannot invoke its tax exemption privilege under Section 109(1)(R) of the Tax Code, as amended, to avoid the passing on or shifting of the VAT. Hence, its purchase of goods, properties, or services from its suppliers shall be subject to the 12% VAT.

Relevantly, in a recent BIR ruling dated 31 January 2018, the BIR clarified that under Section 109(1)(R) of the Tax Code, as amended, there are only four activities that are exempt from the coverage of VAT: [1] sale; [2] importation; [3] printing; and [4] publication of books, newspapers, magazines, reviews and bulletins.

Moreover, the following requirements must be met for such sale, importation, printing, and publication of newspapers, magazines, reviews, and bulletins to be exempt from the imposition of VAT:

  1. Printed or published at regular intervals;
  2. Available for subscription and sale at fixed prices; and
  3. Not principally devoted to the publication of paid advertisements.

Most importantly, the BIR emphasized that for purposes of VAT exemption, the terms “book“, “newspaper“, “magazine“, “review” and “bulletin” refer to printed materials in hard copies and do not include those in digital or electronic format or computerized versions such as eBooks.

Thus, the printing of brochures, bookbinding, engraving, stereotyping, electrotyping, lithographing of various reference books, trade books, journals and other literary works, as well as the sale of books, newspapers, magazines, reviews and bulletin in digital or electronic format or computerized versions, including but not limited to eBooks, e-journals, electronic copies, online library services, CDs and software are subject to VAT.

In conclusion, it is worth noting that the State’s objective of promotion and encouragement of reading is achieved regardless of whether via printed or digital publications.  So one may ask, why the different tax treatment between printed books and digital publications or eBooks.  Why the double standard whereby an eBook or online magazine is imposed with 12% VAT while the printed one (with the same content) purchased in a bookstore/bookshop is VAT-exempt? Is there a subtle endorsement of printed publications? For my dear readers, the question is convenience over cost or vice-versa?

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