BIR Ruling

November 3, 1971 Pambansang Lupon sa Pagpapaunlad Ng Agham (National Science Development Board) General Santos Ave., Bicutan, Taguig Rizal Attention: Mr . A . C . Magsambol Gentlemen : This refers to your letter dated October 25, 1971, stating the following: "Section 191 of the National Internal Revenue Code provides that road, building, irrigation, artesian well, waterworks, and other construction work contractors, proprietors or operators of dockyards, and others, shall pay a percentage tax equivalent to three per centum of their gross receipts. cdt "The National Science Development Board have recently entered into separate contracts with several construction work contractors for the construction of science buildings amounting to millions of pesos. As a government agency, we are required by law when making partial payment to the contractors, to retain 10% of the cost of work accomplished to answer for any defect or deficiency that may later on be discovered. "In view of the opposing views between the contractors and this Office as to the correct basis of the 3% tax, information is requested as to whether the three per centum to be withheld by us as withholding agent of the BIR should be based on the cost of work accomplished before the 10% retention, or should it be based on the amount due the contractors after the 10% retention." In reply, I have the honor to inform you that the 3% contractor's tax imposed by Section 191 of the Tax Code is based on the gross receipts actually received by the contractor. Accordingly, where a contractor, pursuant to a contract, received partial payment from time to time pending completion of the construction, minus ten (10%) per cent of the cost of work accomplished as retention to answer for any defect or deficiency that may later on be discovered, the basis of the tax is the actual amount received after retaining 10% thereof. The 3% tax due on the amount corresponding to the 10% retained shall be withheld by that Office upon actual payment or remittance to the contractor. cdta Very truly yours, MISAEL P. VERA Commissioner of Internal Revenue