Request for Adjustment of the Contract Price in a Negotiated Contract

August 31, 1994 BIR RULING NO. 131-94 110-00 000-00 131-94 Philippine Science High School Agham Road, Diliman Quezon City Attention: Dr . Vicenta F . Reyes Director IV Gentlemen : This refers to your letter dated July 5, 1994, in effect, requesting for a confirmation of your opinion that the negotiated contract executed on July 24, 1993 by and between you and Tomsil Construction & Supply (TOMSIL) for the construction of the Boy's Residence Hall, Canteen and a 550 KVA Substation at the PSHS Visayan Campus, Iloilo City, TOMSIL can still be allowed to adjust the contract price from P7,998,115.65 to P8,434,376.50, inclusive of the 6% value-added tax required to be withheld from government payments pursuant to Republic Act No. 7643, as implemented by Revenue Regulations No. 10-93, effective July 1, 1993. It is represented that at the time of the bidding of the project on December 7, 1992, the addition of the 6% creditable withholding of value-added tax was not considered; hence, the instant request for adjustment. In reply, please be informed that your request has to be, as it is hereby denied for lack of legal basis. The 6% withholding tax is not a tax imposition, but a method of collection; hence, assuming arguendo that RA No. 7643, as implemented by Revenue Regulations No. 10-93, was not yet effective when the public bidding was conducted on December 7, 1992, the original value-added tax was already effective. So, it can be reasonably inferred that before submitting its bid, Tomsil had already considered the effect of the 10% value-added tax on the project cost. To allow the contractor now to adjust its cost would unduly benefit said contractor to the prejudice of the other contractors who participated but lost in the public bidding. This Office, however, will not interpose any objection to the mutual agreement between the parties to adjust the contract price of the project in order to reflect the additional cost incurred by the contractor in having paid their value-added tax liabilities ahead of the scheduled date of payment due to the implementation of the withholding tax scheme under Revenue Regulations No. 10-93. aisadc Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue