Tax Base in Computing the VAT on the Sale of Services

February 29, 1988 BIR RULING NO. 061-88 102 000-00 061-88 Gentlemen : This refers to your letter dated February 3, 1988 stating that you have already registered your business as a VAT entity engaged in the sale of services; that your services consist in the promotion of new products for several manufacturers; that you deploy promotion agents in different supermarkets and commercial outlets to promote a demand for your products; that for such services you bill the client/manufacturer as follows: Basic Salaries P12,256.00 13th month pay 1,020.71 4 days incentive pay 157.03 Sub-Total P13,433.74 Others: ECC/SSS/Medicare 723.87 Transportation 108.85 Holiday 845.88 Day-Off 279.48 P15,400.82 Agency Service Fee 15% x P13,433.74 2,015.06 Total gross receipts P17,415.88 10% VAT 1,741.59 Total collectible for the account of client P19,157.47 ========= Based on the foregoing facts, you now request for a ruling on queries stated as follows: "1. Where do we based the 10% VAT, is it on the agency service fee of P2,015.06 or on the total gross receipts of P17,415.88? "2. Can our client charged the input tax on our Sales of Services against their output tax on the sales of manufactured goods and other merchandise for re-sale?" In reply, please be informed that the tax base in computing the value-added tax on the sale of services is gross receipts which means the total amount of money or its equivalent representing the contract price, compensation or service fee, including the amount charged for materials supplied with the services and deposits or advance payments, actually or constructively received during the taxable quarter for the services performed or to be performed for another person, excluding the value-added tax pursuant to Section 2(m) of Revenue Regulations No. 5-87 implementing Section 102(a)(3) of the Tax Code as amended by E.O. No. 273. Accordingly, in the foregoing illustration the value-added tax should be based on P17,415.88 which represents the gross payments made by your clients. However, your client may charge the input tax on your sale of services against their output tax on their sale of manufactured goods and other merchandise for resale pursuant to Section 10(5) of Revenue Regulations No. 5-87 implementing Section 104 of the Tax Code as amended. cdta Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner