Exemption of Money Payments to be Made by DENR Region XII from Withholding Tax

July 5, 1996 BIR RULING NO. 070-96 RR 10-93 000-00 70-96 Ummah Center for Development Door 4 Factora Compound Dona Gutierrez Ilang-Ilang Sts. Cotabato City Attention: Mr . Romeo R . Balinas Vice Chairman/Executive Officer Board of Directors Gentlemen : This refers to your letters dated April 23 and 30, 1996, stating that you are a non-profit, non-stock organization which was granted a certificate of exemption from filing and paying income tax by our Regional Director thereat; that you entered into a contract with the Department of Environment and Natural Resources (DENR) Region XII to provide services in the latter's Reforestation projects' social preparation activities; that the Chief Accountant of said Office deducted a 3% withholding tax from your quarterly budget on the ground that you are a contractor; and that you believe that you budget allocations are not subject to the said 3% withholding tax for reasons stated therein. LLpr Based on the foregoing, you are requesting this Office for a ruling exempting the money payments to be made by DENR Region XII from withholding tax and at the same time to instruct the Chief Accountant of said Office to replenish the amount previously deducted from your quarterly billings. In reply, please be informed that pursuant to Republic Act No. 7649, as implemented by Revenue Regulations No. 10-93, payments made by the government offices, instrumentalities and agencies, local government units and government-owned or controlled corporations, including their regional/district offices, branches and units, for purchases of goods and services shall be subject to withholding of creditable value-added tax at the rates of 3% and 6% respectively. Since you have entered into a contract with DENR Region XII to provide services for the different reforestation projects of said Office, you are liable to VAT imposed under Section 102 (a) of the Tax Code, as amended by Republic Act No. 7716, even if you are a non-stock, non-profit private organization. Such being the case, payments/billings made by DENR Region XII for services rendered by you shall be subject to the withholding of 6% creditable value-added tax and not to the 3% contractor's tax which has been replaced by the original VAT law (E.O. No. 273) effective January 1, 1988. cd Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue