Request for Clarification on Ruling Re: Contractor's Tax Imposed on Arrastre Operators

November 18, 1981 BIR RULING NO. 233-81 205-13 62-80 233-81 Confederation of Filipino Rice and Corn Association, Inc. 30 Imperial Street, Cubao Quezon City Attention: Ms . Susana S . Liwag President M a d a m : This refers to your letters dated July 23 and September 11, 1981, requesting reconsideration of BIR Ruling No. 62-80 dated December 22, 1980 allowing an arrastre operator to pass on to its customers the 3% contractor's tax prescribed in Section 205 of the Tax Code of 1977, as amended. You also requested that this Office affirm its original ruling that the arrastre contractor may pass on the tax to its customers only with the latter's consent. cd You have represented that the abovementioned ruling is a reversal of BIR Ruling dated February 23, 1978 which ruled that the 3% contractor's tax prescribed in Section 205 of the Tax Code of 1977 is a tax for which the contractor is directly liable; that although the contractor may, with the consent of his client, bill the latter for the tax paid or payable by him, he remains directly liable therefor. You also alleged that BIR Ruling No. 62-80 is unjust and unfair to the Filipino Rice and Corn Association and is contrary to the government policy; and that passing on to the rice and corn shippers the 3% tax will not only increase their shipping costs but will contravene the existing policies of the grains industry enunciated under the different Decrees and Letters of Instruction. In reply, I have the honor to inform you that the ruling of this Office to the effect that arrastre operator can legally pass on to its customers the 3% contractor's tax prescribed in Section 205 of the Tax Code is merely in consonance with the well-known characteristic of indirect taxes (one of which is the contractor's tax), i.e., "those that are demanded in the first instance from one person in the expectation and intention that he can shift the burden to someone else." (Taxation in the Philippines, by Tomas P. Matic, Jr., p. 38) Moreover, in the case of the Philippine Acetylene Co. vs. Commissioner of Internal Revenue, G.R. No. L-19707, August 17, 1967, the Supreme Court said: "Many years ago, Mr. Justice Oliver Wendell Holmes expressed dissatisfaction with the use of the phrase "pass the tax on". Writing the opinion of the U.S. Supreme Court in Lash's Products v. United States , he said: The phrase "passed the tax on" is inaccurate, as obviously the tax is laid and remains on the manufacturer and on him alone. The purchaser does not really pay the tax. He pays or may pay the seller more for the goods because of the seller's obligation, but that is all. . . . The price is the sum total paid for the goods. The amount added because of the tax is paid to get the goods and for nothing else. Therefore, it is part of the price . . . ." (Philippine Acetylene Co. vs. Commissioner, G.R. No. L-19707, August 17, 1967) Following the above pronouncement, it can be stated that the fee or consideration agreed upon between the contractor and his customers is the total amount paid for the services to be rendered by the former to the latter. The amount added because of the contractor's tax is part of said consideration. Consequently, in the final analysis, since the consideration is fixed by the parties, the tax is passed on by the contractor to the customer with the consent of the latter. In view thereof, this Office finds no inconsistency in the aforecited rulings. Hence, a reconsideration of BIR Ruling No. 62-80 is deemed unnecessary. Very truly yours, RUBEN B. ANCHETA Acting Commissioner