DCII's VAT Liability Cannot be Reduced to the Extent of the Amount Paid for Other Taxes

August 2, 1996 BIR RULING NO. 087-96 104 000-00 087-96 Coordinating Council of the Philippine Assistance Program, Office of the President, 8th Floor, EDPC Building, Central Bank Complex, A. Mabini Street, Ermita, Manila Attention: Ms . Lilia Arce Gentlemen : This refers to your Telefax Message dated May 29, 1996 requesting for a BIR opinion on item No. 2 of page 1 thereof, the contents of which are hereinbelow stated: "DCII has projected that they will pay VAT amounting to P28,307,060. They have already paid VAT (to end of March) totaling P2,816,449,87 per the DCII vouchers; for VAT costs of local contractors, materials, etc. Also does the BIR VAT claim get reduces by other taxes paid by DCII (fuel, aggregate tax, other duties)? These other local duties taxes are projected to amount to P11,184,228 by DCII." cdti It appears from the sequence of questions 1, 2, & 3, that DCII is the main contractor under a contract for an undisclosed government project sponsored by DOTC; that DCII has incurred a VAT liability of P33,750,000, inclusive of surcharge amounting to P6,750,000; and that DCII has paid other taxes and duties on its purchases of fuel. Based on the foregoing facts, DCII raised the issue whether its VAT liability could be reduced to the extent of the amount paid for other taxes. In reply, please be informed that DCII's request cannot be granted for lack of legal basis. In other words, payment of other taxes cannot be used as input tax against the VAT liability of the contractor. Pursuant to Section 104 of the Tax Code, only the Value Added Tax on the following purchases of goods or services are deductible from the VAT liability of the taxpayer, to wit: (1) Purchase of importation of goods: (A) For sale; or (B) For conversion into or intended to form part of a finished project for sale including packaging materials; or (C) For use as supplies in the course of business; or (D) For use as materials supplied in the sale of service; or (E) For use in trade or business for which deduction for depreciation or amortization is allowed under the Code, except automobiles, aircraft, and yachts. (2) Purchase of services on which a value added tax has been actually paid. aisadc Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue