BIR Ruling

March 29, 1977 Laguna Lake Development Authority Rizal Provincial Capitol Pasig, Rizal Attention: Mr . Salvador R . Lintag Auditor Gentlemen : This refers to your letter dated January 17, 1977 requesting information as to whether the 3% contractor's tax should be based on the gross contract price or on the installation cost in view of the request of the Picarima Marketing, Inc., Quezon City for reimbursement of the 3% tax withheld on the cost of the equipment delivered to that Office. The documentary evidence submitted show that a contract of agreement was entered into by and between the Laguna Lake Development Authority, a government owned and controlled corporation duly organized and existing under R.A. No. 4850, as amended by P.D. No. 813, hereinafter referred to as LLDA and the Picarima Marketing, Inc., a corporation duly organized and existing under the Philippine laws with principal office at 83 J. Abad Santos St., Heroes Hill, Quezon City, hereinafter referred to as the CONTRACTOR whereby the latter agreed to undertake the furnishing, delivery and installation of two (2) units paddle wheel assembly and two (2) units mechanical flash mixer at the Water Quality Management Study algal growth pond at UP Compound, Diliman, Quezon City from its own funds, labor, plans, equipment, materials and supplies needed therefor; that LLDA has awarded the aforesaid undertaking to the CONTRACTOR at the lowest acceptable bid in the amount of P21,850.00; that LLDA deducted the 3% tax based on the gross contract price of P21,850.00 which include cost of the equipment delivered; and that the CONTRACTOR contested the deduction stating that deduction of the 3% tax should be based only on the installation cost of P2,250.00 and not on the contract price since the case is a simple delivery of equipment for which no installation is involved and that the delivery to the LLDA consisted of imported electric motors and other equipment where the corresponding sales taxes have been paid. In reply, I have the honor to inform you that under the foregoing facts, the contract is one for a piece of work. Hence, the contract price of P21,850.00 hereof is considered as the gross receipts derived by the Contractor upon which the 3% tax prescribed by Section 191 of the Tax Code should be based. Accordingly, that Authority correctly deducted and withheld the 3% tax on the said amount of P21,850.00 and not on the installation cost of P2,250.00, in compliance with the withholding tax provisions of R.A. No. 1051. "For purposes of the 3% contractor's tax prescribed in Section 191 of the Tax Code, the term 'gross receipts' means the actual amount received by a contractor for the services rendered by him without any deduction, and if the materials are supplied by him, the amount charged therefor". (BIR Ruling dated March 16, 1962, cited in Araas Annotations and Jurisprudence on the National Internal Revenue Code). Very truly yours, EFREN I. PLANA Acting Commissioner of Internal Revenue TAN-P4519-F2828-A-8