Procedure of Payments of the 3% Tax Due from the Government Contracts

April 4, 1960 BIR RULING NO. 173-60 Mr. Segundo J. Esguerra 5-A Dungon, Quezon City S i r : Reference is made to your letter dated February 16, 1960, requesting information whether or not the procedure of payments of the 3% tax due from the government contracts as illustrated below, is in conformity with the pertinent provisions of the National Internal Revenue Code and related BIR rules and regulations. liblex "A contractor enters into contract with the government for the construction of say, a road or a bridge. As the work progresses, once each month or oftener, if warranted, the government project engineer will make an estimate of the work performed, in accordance with the provisions of the contract. Each estimate, as certified to by the project engineer, shall be filled by the contractor and as a basis for his request for partial payments from the government. As per contract, 10% of this estimate shall be deducted and held by the government until final acceptance of the entire contract. Partial payments are considered as approximate only, financing aids to contractors, and in no way be considered as evidence of acceptance of work accomplished. Partial payments are paid to the contractor under general voucher prepared as follows: To first partial payment for work accomplished P100,000.00 LESS: 10% retention as per contract 10,000.00 GROSS AMOUNT DUE CONTRACTOR P90,000.00 LESS: 3% BIR percentage tax P2,700.00 NET AMOUNT DUE AND PAID TO CONTRACTOR P87,300.00 ========= Under the above illustration the 3% tax is computed in the estimate work accomplished without retention paid by the government. The tax due on the accumulated retention is computed and deducted by the government from such retention after the final acceptance of the entire contract when finally paid to the contractor. In reply thereto, I have the honor to inform you that in the illustration, the 3% tax is actually computed on the basis of the P90,000.00, after retention. The basis is, therefore, correct because it is the actual amount received. It may be stated in this connection that the decision in G.R. No. L-11113 and No. L-11134 is not material in this case. LLphil Very truly yours, MELECIO R. DOMINGO Commissioner of Internal Revenue