Whether VAT is Inclusive of the Fee Referred to in Art. 9.5(1) of the Concession Agreement of MWSS Privatization

March 29, 1999 BIR RULING NO. 037-99 108 (A)-000-00-037-99 Metropolitan Waterworks and Sewerage System Regulatory Office Katipunan Road, Balara Quezon City Attention: Mr . Fernando L . Vicente Chief Regulator Gentlemen : This refers to your letter dated January 13, 1998 requesting, in effect, for a ruling as to whether or not a value added tax is inclusive of the fee referred to in Article 9.5(1) of the Concession Agreement of MWSS privatization which provides, viz: "For connections or reconnections to a water main or a public sewer (each a "Connection") that are both located less than 25 meters from the connection point and are to residential customers, the Concessionaire shall have the right to charge each customer requesting such a Connection a fee not to exceed P3,000.00, which amount shall automatically be adjusted on January 1st of each year by the percentage change in the Consumer Price Index for the preceding year (each a "Connection Charge"). In reply, please be informed that under Section 108(A) of the Tax Code of 1997 there shall be levied, assessed and collected, a value-added tax equivalent to 10% of the gross receipts derived from the sale or exchange of services, including the use or lease of properties. For this purpose. the term "gross receipts" means the total amount of money or its equivalent representing the contract price, compensation, service fee, rental or royalty, including the amount charged for materials supplied with the services and deposits and advanced payments actively or constructively received during the taxable quarter for the services performed or to be performed for ,another person, excluding value-added tax. Such being the case, the P3,000.00 fees charged for connections or reconnections to a water main or a public sewer which are located less than 25 meters from the connection point under Article 9.5(1) of the Concession Agreement of MWSS privatization is subject to the 10% value-added tax based on the gross receipts from such "connection fees" which shall be exclusive of the value-added tax. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, this ruling shall be considered null and void. Very truly yours, (SGD.) BEETHOVEN L. RUALO Commissioner of Internal Revenue