Applicability of the 4% Contractor's Tax

June 30, 1986 BIR RULING NO. 099-86 170 134-85 099-86 Gentlemen : This refers to your letter dated September 12, 1985 stating that your company is engaged in janitorial and sanitation services and as such have existing contracts with different government entities which were entered into and/or renegotiated prior to October 15, 1984; that said government entities had been deducting contractor's tax at the rate of 4% on your gross contract receipts beginning October 16, 1984; and that among these government contracts are: CONTRACTS ENTERED NEGOTIATED PRIOR CONTRACT EXPIRY TO OCTOBER 15, 1984 DATE 1. Manila International Airport Authority (MIAA) 1.1 International Passenger April 1, 1985 but Terminal extended up to Sept. 30, 1985 pending the result of public bidding conducted last July 22, 1985. 1.2 Domestic Terminal December 31, 1984 but also Airport extended until Sept. 30, 1985 and still awaiting bidding result. 1.3 MIAA/Domestic Garbage December 31, 1984 but also Collection Services extended until Sept. 30, 1985 and awaiting bidding result. 2. Government Service Insurance System 2.1 Office buildings in August 1, 1985, January 17, Manila, Makati and 1986 and October 10, 1985 Quezon City respectively. 3. Bureau of Customs December 31, 1984 but Port of Manila extended until August 15, 1985 due to public bidding conducted last June 1985, contract terminated on August 16, 1985. Based on the foregoing, you now seek clarification on the following questions: "1. Are our contracts mentioned above subject to the old 3% contractor's tax. When will the 4% tax rate be applicable? "2. What are our remedies with respect to the overdeduction and/or overpayment of contractor's tax by 1% covering the period October 16, 1984 up to present made by said government entities?" In reply, please be informed that the 4% contractor's tax imposed under Section 170 (formerly Section 205) of the Tax Code, as amended by P.D. No. 1959 shall be applied on gross receipts derived from contracts entered into or renegotiated on or after October 15, 1984. Gross receipts derived from contracts entered into or renegotiated prior to October 15, 1984, shall still be subject to the 3% contractor's tax. (Revenue Regulations No. 7-85 dated May 14, 1985) Accordingly, since your contracts with the abovementioned government entities were entered into before October 15, 1984, you are subject to contractor's tax at the rate of 3% on your gross receipts derived during the period starting from the inception of the contract up to their respective original expiry dates. However, gross receipts derived during the period of extension reckoned from the original expiry date shall be subject to the contractor's tax at the increased rate of 4%. cdtech With regard to the overdeduction and/or overpayment made by you beginning October 16, 1984 up to the present, you should file with this Bureau: Attn.: Appellate Division, a written claim for tax credit of the excess 1% tax withheld, within two years from the payment thereof under Section 246(3) (formerly Section 295(3)) of the Tax Code as amended. Automatic off-setting of the said excess 1% contractor's tax against similar taxes due on future billings of the contractor is not authorized by law. Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner