BIR Ruling

February 16, 1977 3rd Indorsement Respectfully returned to the Chairman, Commission on Audit, Quezon City, thru the Auditor, Bureau of Internal Revenue, Manila. In the basic letter of the Philippine Long Distance Telephone Co., it is alleged that government departments, offices and bureaus have been deducting from its monthly billings for telephone service, the 3% contractor's tax imposed by Section 191 of the Tax Code. The gross receipts derived by PLDT for telephone services rendered are exempt from the payment of the 3% contractor's tax, pursuant to Section 7 of Act No. 3436, its franchise, which provides that "the grantee its successors or assignee shall pay to the Insular Treasurer each year within ten days after the audit and approval of the accounts as prescribed in Section 24 of the franchise, one per centum of all gross receipts transacted under this franchise by the grantee, its successors or assignee and the said percentage shall be in lieu of all taxes on this franchise or earnings." (Emphasis ours) Consequently, the deduction and withholding of the 3% contractor's tax from the monthly billings of PLDT by government offices has no legal basis. However, inasmuch as the 1% franchise tax payable by PLDT can be fixed, determined and computed at the time of payment, said tax is subject to the withholding provisions of Republic Act No. 1051, as implemented by Revenue Regulations No. 21-67. Consequently, government offices must deduct and withhold the 1% franchise tax upon payment of telephone service bills. In this connection, attention is invited to the fact that under Republic Act No. 6146, the franchise of PLDT has been extended for 25 years from the date of its expiration on November 28, 1978 and that during the said period of extension, PLDT shall pay a franchise tax of 5%. Accordingly, beginning November 29, 1978, government offices must deduct and withhold a franchise tax at the increased rate of 5% of their telephone service bills . EFREN I. PLANA Acting Commissioner of Internal Revenue TAN-1456-040-3