Party Liable for the Payment of VAT on a Delivery of Supplies to Petrophil Corporation

June 6, 1988 BIR RULING NO. 242-88 25-000 000-00 242-88 Gentlemen : This refers to your letter dated January 30, 1988, stating that you are a supplier-dealer of, among others, new empty steel drums to Petrophil Corporation; that you have purchase orders for 1987 which provide for a staggered schedule of deliveries; that the delivery of the balance of the steel drums provided in the 1987 purchase order has been overtaken by the implementation of the value-added tax; and that Petrophil Corporation is unwilling to pay the additional 10% on top of the agreed price prior to the imposition of the value-added tax. Based on the foregoing representation, you now request for a ruling on whether Petrophil is correct in refusing to pay the additional 10% increase in price to reflect the value-added tax of 10%. In reply, please be informed that the value-added tax is an indirect tax; hence, it can be shifted to the customer. Once shifted to the customer as addition to the cost of goods sold, it is no longer a tax but an additional cost which the customer has to pay in order to obtain the goods (Philippine Acetylene Co. vs. Commissioner of Internal Revenue, C.R. No. L-19707, August 17, 1967). In the instant case, you are the party liable for the payment of the value-added tax on your delivery of supplies to Petrophil Corporation. If the latter does not agree to the shifting of the VAT, it is entirely your own decision on whether or not to proceed with the contract. cdta Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner