Clarification on Certain Issues in the Implementation of the VAT Tax on Contracts Entered into by LWUA

June 2, 1988 BIR RULING NO. 226-88 102 (a) 158-88 226-88 Gentlemen : This refers to your letter dated February 26, 1988 requesting clarification on certain issues in the implementation of the value-added tax on contracts entered into by LWUA. In reply, please be informed of the following: 1. The amounts due from contracts completed on or before December 31, 1987 but paid in 1988 are subject to the 4% contractor's tax provided the conditions prescribed in Section 6(g) of Revenue Regulations No. 5-87 are complied with, viz: (i) an information return shall be filed showing the name(s) of the contractee(s) and the amount(s) of the contract price outstanding as of December 31, 1987, and containing a declaration of the obligation to pay the contractor's tax due; (ii) the contractor billed the unpaid amount not later than December 31, 1987, and copy of such billing is attached to the information return required in (i) thereof; (iii) the contractor has recorded in his books of accounts for the year 1987 the amount receivable; and (iv) the contractor files not later than January 20, 1988 and or before the 20th day after each calendar quarter, the regular contractor's tax return for the payment of the contractor's tax on payments received in 1988. 2. In the case of contracts entered into prior to January 1, 1988 and not completed as of December 31, 1987 and, therefore, payments thereon are made after said date, the receipts derived by the contractor are subject to the 10% VAT. However, if the contractor will request for cost adjustment to cover VAT, you may reasonably grant an adjustment of 6% only corresponding to the difference between the 10% VAT and the 4% contractor's tax. (BIR Ruling No. 183-88 dated May 4, 1988) 3. Supplemental agreements entered into after the effectivity of the VAT, are subject to the 10% value-added tax although the 4% contractor's tax is imputed in the original contract entered into prior to January 1, 1988. 4. In the re-computation of the contract costs, the basis of the 10% VAT is the cost of labor, if the contractor shall supply labor only. On the other hand, if the contractor shall supply both labor and materials, the basis of the tax shall be the cost of labor and materials. cdta Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner