BIR Ruling

July 31, 1967 Messrs. Ponce, Candoy & Associates 17 Kamias Road, Quezon City Gentlemen : This refers to your letter dated April 14, 1967 stating the following: cdt "FACTS: Company X is a contractor undertaking for Company Y a road construction project; total contract price therefore is P2.3 million with work schedule of 4 years from date the construction began. Monthly payments, on the basis of job accomplishment, are made by Company Y at a fixed amount of P35,000.00. Company X assumes and advances all costs of labor and materials such that there are times when such cost would exceed the collection due and payable by Company Y. "QUESTIONS: (1) Must Company X, for purposes of the 3% contractor's tax imposable thereon, pay based on the P35,000 monthly collection? (2) What happens if and when, as stated above, the costs (for labor and materials) exceed such collection. Must Co. X be liable to the 3% contractor's tax nevertheless?" In reply thereto, I have the honor to inform you that the 3% tax prescribed by Section 191 of the Tax Code, is based on the actual receipts of the contractor at the end of every month. Thus, in the above mentioned case, the tax is based on the P35,000.00 which Company X receives from Company Y. The contractor remains liable for the 3% tax on all amounts received by him during the month even if the cost of labor and materials expended for the month is greater than the amount received by him during the same period. It should be emphasized in this connection that the 3% tax imposed by Section 191 is based on the gross receipts of the contractor, irrespective of whether or not he gains from the contract. LibLex Very truly yours, (SGD.) MISAEL P. VERA Commissioner of Internal Revenue