Tax Exemption on the Earnings of the Driver Derived from the Operation of the PUJ

October 14, 1988 BIR RULING NO. 498-88 102 (a) 112 115 000-00 498-88 S i r : This refers to your letter dated September 5, 1988 relative to the alleged practice by PUJ operators of charging their drivers a fixed amount (so-called boundary) for using their vehicles for a certain number of hours. You now posed the following questions: "1. What kind of taxes must the driver and the PUJ operators (sic) must pay aside from the income tax due them? Is the owner of the vehicle considered as lessor of personal property subject to the 4% business tax and the drivers who charge passenger revenues subject to the 3% common carrier's tax or the 10% or 2% VAT? "2. An employee of a logging and sawmill company also aside from his salary claims himself as a management consultant and received also additional fee for such claimed services. If he is not a professional paying his professional fee to the PRC, what business tax will he pay, 4% contractor's tax or 2% VAT tax if under P200,000.00 per annum ? In reply, please be informed as follows 1. The earnings of the driver derived from the operation of the PUJ vehicle are not subject either to the 10% VAT, 2% percentage tax or 3% common carrier's tax respectively imposed under Sections 102(a), 112 and 115, all of the Tax Code, as amended. On the other hand, the PUJ operator is subject to the 3% common carrier's tax under said Section 115 of the Tax Code, but exempt from the value-added tax pursuant to Section 103(j) of the same Code. You are informed in this connection that the provisions of then Section 170 of the Tax Code which imposed a contractor's tax of 4% on proprietors or operators of business establishments and/or persons engaged in the business of selling and rendering services for fee or compensation like lessors of personal property, has already been replaced by the VAT law which took effect on January 1, 1988. 2. Under Section 102(a) of the Tax Code, as amended by Executive Order No. 273, a person engaged in the sale of service is subject to 10% value-added tax. The phrase "sale of service" means the performance of all kinds of service for others for fee regardless of whether or not the performance thereof calls for the exercise or use of the physical or mental faculties. Undoubtedly, by acting as management consultant, the employee adverted to in your query is engaged in the sale of services to the logging and sawmill company where he is at the same time employed. Hence, the additional fee which he received as management consultant of the logging and sawmill company, which is apart from the regular salary he is receiving as an employee, thereat, is subject to the 10% value-added tax. Very truly yours, (SGD.) EUFRACIO D. SANTOS Deputy Commissioner