BIR Ruling [DA-222-98]

June 5, 1998 BIR RULING [DA-222-98] Commission on Audit Commonwealth Avenue Quezon City Attention: Mr . Celso D . Gangan Chairman Gentlemen : This refers to your letter indorsement dated February 24, 1998 and referred to this Office on March 18, 1998 by Ms. Adelina L. Ancajas, State Auditor, Bureau of Internal Revenue, requesting for opinion on the proper interpretation of Revenue Regulations No. 10-93 on the matter of the withholding of value-added tax, viz; "1. Whether or not the purchases of goods and services out of the cash advance of a special disbursing officer is covered by subject regulations; and "2. Whether or not a special disbursing officer is considered a withholding agent as defined in Section 4 of the Regulations." prcd It is represented that the result of COA's examination of the cash and accounts of the special disbursing officers at the Commission's Central Office had revealed shortages due primarily to the non-withholding of value-added tax (VAT) occasioned by the refusal of some suppliers to deduct the corresponding VAT from their sales; that in view of the urgent need for the goods and services and to avoid the incurrence of shortages or disallowances in their accounts, the concerned special disbursing officers, in most instances, shoulder the VAT; and that while the same is not a sound accounting practice and procedure, COA encounters this situation which exists in the business environment and expects its continuing presence in COA's daily operation unless remedied or defined. In reply, please be informed that Section 4 of Revenue Regulations No. 10-93 dated June 16, 1993 specifically requires all withholding agents of all local governments units (LGUs) represented by the Provincial Treasurer in the provinces, the City Treasurer in cities, the Municipal Treasurer in municipalities and Barangay Treasurer in barangays, the Treasurers of GOCCs, and the Chief Accountant or any person holding similar position and performing similar function in national government offices, to deduct and withhold the prescribed creditable VAT before making any payment to seller of goods and services. The foregoing provision specifically enumerates the officers or persons which are directly responsible to withhold the VAT, like the Treasurers of various LGUs and GOCCs, the Chief Accountant and other person holding similar position and performing similar function in the National Government offices. The position and function of a special disbursing officer is quite different and cannot be equated with the above-mentioned government employees. He assumes the handling of the funds to be used in buying the goods or contract services required for the purpose/project. Since the goods/services are bought or contracted as the need arises and in small quantity or for a limited time, the purchasing or leasing-contracting does not pass through the regular bidding procedure nor are being bought or contracted from the regular contractor/supplier of the agency concerned. Oftentimes, the special disbursing officer buys goods from the counter in the manner as that of an ordinary end buyer. In this situation, any government personnel who buys goods from the store counter cannot, in behalf of the government, withhold a portion of the VAT and thereafter remit the same to the BIR. The process is too tedious since the seller may require some identification or papers for the purpose. LLpr Thus, the question as to whether or not the purchase of goods or services out of the cash advance of a special disbursing officer is covered by Rev. Regs. No. 10-93, is answered in the negative. A cash advance is a special fund specifically set up to meet a specific need of the project which is urgent under a given situation. The special disbursing officer-employee is expected to liquidate the amount so advanced by submitting the invoices, official receipts or contracts or other proofs of expenditures. Procedurally, the preparation of voucher for the cash advance are done twice: one when the officer receives the cash advance and the other when he liquidates the amount so advanced which must be equal to the expenses as shown in ORs/invoices or such expenses plus any cash still on hand at the time of liquidation. Hence, the liquidation of such cash advance does not include the remittance of any withholding taxes. On the second issue, i.e., whether or not a special disbursing officer is considered a withholding agent as defined in Section 4 of the subject Revenue Regulations, is likewise answered in the negative. As explained above and due to some constraints in the purchasing of goods, the withholding of VAT is not among the special duties expected of a special disbursing officer. Likewise, there are instances where he cannot render full account of the expenses made. In such case, the amount so advanced or part thereof, shall be disallowed and therefore shall be charged as his personal cash advance. Ordinarily, a government employee designated as a special disbursement officer in order to meet the urgency of the situation, stands to be like any other buyer who buys the goods over the counter. Under the circumstances, the VAT portion of the goods shall be included and passed on to him as part of the cost. Once the whole VAT is passed on, the buyer assumed the VAT, and the seller on the other hand, is expected to remit the VAT portion of the goods sold. The phrase "purchase of goods and services rendered by contractors" presupposes compliance with the pre-audit and bidding requirements, which are absent in the case of purchases of goods over the counter made by the government and its agencies. In all practicality therefore, this kind of purchase of goods/service is not the same as the contemplated under Section 114(B) of the Tax Code of 1997. On the other hand and without actually eliminating the possibility of a situation wherein a contract has been pre-entered into by the concerned government agency, the payment for which is only being channelled through a disbursing officer in connection with a special project/purpose, this Office sees him as the representative of the duly designated withholding agent/s and therefore shall equally withhold the corresponding portion of the VAT for such purchases. After a thorough consideration of the matter, this Office therefore sets the following criteria where a special disbursing officer is not required to withhold a portion of the VAT on the purchases made by the government, viz: 1. The fund in possession is a Cash advance as shown in the Disbursements Vouchers duly prepared for the purpose; 2. The cash so advanced is intended for a short-term special purpose/project urgent in nature which therefore cannot comply with the bidding requirement; prll 3. The contract of services or purchases of goods are not regularly done by the special disbursing officer; 4. The requirement of goods purchased or services contracted does not extend beyond the life of the project. Therefore, the quantity of goods purchased is few or the services leased/hired is limited for a particular time; and 5. Finally, the emergency purchases are duly justified. For your guidance. (SGD.) LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue