Deduction of the 1% Creditable Income Tax and of the 4% Contractor's Tax

February 8, 1989 BIR RULING NO. 015-89 102 (a); 51 581-88 015-89 Gentlemen : This refers to your letter dated January 3, 1989 in relation to your letter dated November 4, 1988 stating that you had a contract with the Davao Light and Power Co., Inc. on July 27, 1987 whereby the latter will provide a primary power distribution system for the Davao RIFT/RFTC Complex under the Fishery Training Project, a World Bank-assisted Project implemented by that Agency; and that the status of the installation of the project as of today is around 85% complete and you have processed two (2) progress billing whereby 4% withholding tax and 1% withholding tax have been withheld out of the gross collection of Davao Light and Power Co., Inc. Further to B.I.R. Ruling No. 102 (a) -51-000-00-581-88 dated December 15, 1988 holding that the 1% expanded withholding tax shall be deducted and withheld by you from your gross payments to Davao Light and Power Co., Inc. pursuant to Section 1(c) of Revenue Regulations No. 6-85, you now seek confirmation that your withholding of 1% creditable income tax and 4% contractor's tax prior to January 1, 1988 is correct. Moreover, you request for a ruling whether, after the effectivity of the VAT on January 1, 1988, you are still required to deduct the 1% creditable income tax and waive the deduction of the 4% contractor's tax from your income payments to Davao Light and Power Co., Inc. In reply, please be informed that your deduction of the 1% creditable income tax and of the 4% contractor's tax from your income payments to said Davao Light and Power Co., Inc. prior to January 1, 1988 is correct. After the effectivity of the VAT on January 1, 1988 you will continue to deduct only the 1% creditable withholding tax but not the 10% value-added-tax (which replaced the contractor's tax) because there is no provision for the withholding of the VAT from the income payments by the Government agencies to the contractor since the amount of VAT cannot be fixed, determined, computed or ascertained at the time of payment pursuant to Revenue Memorandum Circular No. 18-88. cd Very truly yours, (SGD.) JOSE U. ONG Commissioner