Tax Exemption of Payments to the DBM by Government Offices for Goods/Supplies Procured by the Latter

September 28, 1994 BIR RULING NO. 148-94 R.A. 7649 000-00 148-94 Procurement Service Department of Budget and Management Madrigal Compound, Cristobal St. Paco, Manila Attention: Mr . Estanislao C . Granados, Jr . Director Gentlemen : This refers to your letter dated May 17, 1994, requesting for a certificate of exemption from 3% VAT withholding on income payments by any of the government offices procuring supplies from your department pursuant to Republic Act No. 7649, as implemented by Revenue Regulation No. 10-93. It appears that the procurement service is one of the operating units in the Department of Budget and Management and was created pursuant to Executive Order No. 285, to operate as a central procurement system of the government. It performs the governmental function of procuring supplies for the government. In reply, please be informed that the suppliers subject to the withholding of creditable VAT under Revenue Regulations No. 10-93, implementing Republic Act No. 7649, refer to those who are regularly engaged in the business of selling goods or services to the government. They must, first of all, be operating a business which is subject to VAT. It does not apply to the supply of goods by your Office to other government offices which is clearly a governmental and not a proprietary function mandated under Executive Order No. 285. Based on the foregoing, payments to you by the government office concerned for goods/supplies procured by the latter is not subject to the creditable VAT withholding provided under Revenue Regulations No. 10-93 implementing Republic Act No. 7649. aisadc Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue