Propriety of Collection and/or Withholding of Creditable VAT on Income Payments to Petrophil

June 10, 1998 BIR RULING NO. 087-98 109 (e) 148 (k)-000-00-87-98 Office of the District Engineer San Jose, Antique Attention: Mr . Simeon C . Pili District Engineer Gentlemen : This refers to your letter dated August 5, 1997 which was referred to this Office by the Regional Director, Revenue Region No. 11, Iloilo City, in effect requesting for a ruling to resolve the issue as to whether or not the collection and/or withholding of creditable VAT on income payments to Petrophil is correct. It appears that you regularly buy asphalt from Petrophil; that before making income payments to Petrophil on your purchase of asphalt from the latter, you deduct and withhold the corresponding creditable VAT; and that consequently, Petrophil refused to deliver the correct volume of asphalt on the ground that the sale of asphalt is exempt from VAT. LLpr In connection therewith, please be informed that Section 103(e) of the Tax Code, as amended by R.A. No. 7716 as further amended by R.A. No. 8241 (now Sec. 109(c) of the Tax Code of 1997), exempts from VAT the "sale or importation of coal and natural gas, in whatever form and state and petroleum products (except lubricating oil, processed gas, grease, wax and petrolatum) subject to excise taxes under Title VI of the Code". (Emphasis supplied) Under Section 2(1) of Revenue Regulations No. 8-96, the term "Petroleum products" include among others, asphalts subject to excise tax at the rate of P0.56 per kilogram pursuant to Section 145(11) of the Tax Code, as amended by R.A. No. 8184 (now Sec. 148(k) of the Tax Code of 1997). Accordingly, since the sale of asphalts is exempt from VAT, the withholding of the creditable VAT on your payments to Petrophil on account of your purchases of asphalts from it has no legal basis. Very truly yours, (SGD.) LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue