3% Withholding Tax Payment of Contract Price

May 21, 1979 BIR RULING NO. 027-79 3% Withholding tax payment of contract price This refers to your letter dated April 24, 1979 requesting clarification as to whether the 10% of the contract price retained by the government agency in a construction contract is subject to the 3% withholding tax imposed by Revenue Regulations No. 13-78 implementing Presidential Decree No. 1351. It appears that 10% of the contract price is being retained by the government agency to answer for any defect or delay in a construction project and the same will be paid ultimately when the government agency finally accepts the project. In reply, I have the honor to inform you that amounts paid to a construction work, contractors are subject to the 3% withholding tax based on gross payment received by them. (Sec. 1(e), Revenue Regulation No. 13-78). Accordingly, if at the time of payment of the contract price, 10% thereof is not paid to the contractor, but retained by the contractee, said 10% retention is not yet subject to the 3% withholding tax but will be subject to tax when actually paid/received by the contractor.