Whether the DECS Educational Development Projects Implementing Task Force (EDPITAF) is Exempt from the Obligation to Withhold the Corresponding Taxes Payable and Collectible from the Winning Bidders-Contractors

May 23, 1995 BIR RULING NO. 082-95 110 (c) 000-00 082-95 Department of Education, Culture & Sports Educational Development Projects Implementing Task Force Dorm D, PSC-NAS Complex Meralco Avenue, Pasig Metro Manila Attention: Mr . Achilles B . del Callar Executive Director Gentlemen : This refers to your letter dated November 28, 1994 stating that your Department through the Educational Development Projects Implementing Task Force (EDPITAF) is currently implementing the Philippines Australia Agricultural Technology Education Project (AGRITECH); that AGRITECH is supported by a grant package from the Government of Australia (GOA) which aims to reorient and improve agriculture education services in the country to make it more responsive to the needs of students, farmers and communities; that it assists two institutions to have the capacity and capability to become Regional Colleges of Agriculture (one each in Region II and Region IV); that the AGRITECH became effective and operational last September 23, 1994 by virtue of the Memorandum of Understanding (MOU) signed by and between the GOA and the Government of the Philippines (GOP); that part of the grant package is the construction of facilities at the Provincial Technical Institute of Agriculture to be completely financed by the GOA grant; that under the terms of the MOU, more specifically Section 7.1, the GOP is under obligation to pay import duties, Value-Added Tax and other duties and taxes imposed in the Philippines; that the implementation arrangements for the construction of facilities component are as follows: LLjur 1. The GOA conducts the bidding for said facilities; 2. The GOA enters into contracts with the winning contractors; 3. The GOA handles all the GOA inputs (money) and pays directly to the winning contractors; and that there is no GOP allocation for the taxes attendant to the construction services; and that the bidding for the AGRITECH construction services is scheduled on December 12, 1994. Based on the foregoing representation and documents submitted, you are now requesting, in effect, for a ruling that the DECS-EDPITAF is exempt from the obligation to withhold the corresponding taxes payable and collectible from the winning bidders-contractors. In reply, please be informed that while under the provisions of the MOU, stating "7. Project Supplies, Motor Vehicles and Professional and Technical Material and Services. "7.1 In respect of project supplies, motor vehicles and professional and Technical material and services whether to be imported into and/or procured within the Philippines, the Government of the Republic of the Philippines will: "(a) be responsible for the payment of import duties, value-added tax (VAT) and other duties and taxes imposed in the Philippines; and be responsible for inspection fees, storage charges and all other fees and charges levied in the Philippines., . . ." the Government is obligated to pay internal revenue taxes, among others, on the project's procurement of supplies, motor vehicles and professional and technical material and services whether imported or locally purchased, it should not be understood as a grant of direct or indirect tax exemption privilege to the contractors because of the Constitutional prohibition against grants of tax exemptions without the concurrence of the majority of the members of Congress [Sec. 28(4), Art. VI 1987 Philippine Constitution]. Accordingly, despite the above stipulation, for value-added tax purposes, DECS-EDPITAF shall still withhold the 6% tax prescribed under R.A. No. 7649, amending Section 110(c) of the Tax Code, as amended, and as implemented by Revenue Regulations No. 10-93 from their income payments to the contractors. cdtech Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue