Request for Reimbursement of a Sum of Money Deducted and Withheld by the DILG

October 13, 1997 DILG LEGAL OPINION NO. 120-97 COLJUSTINO A. PADIERNOS (Ret) Project Manager MR. VARGAS CONSTRUCTION 259-269 CLMC Bldg., Greenhills Mandaluyong City Dear Col. Padiernos : This has reference to your letter, requesting for the reimbursement of a sum of money in the amount of P1.8 million deducted and withheld by this Department equivalent to six percent (6%) on your gross billings on the services you rendered in Contract Package No. 11-B, representing the six percent (6%) creditable value-added tax. LLphil You stated that said deduction and withholding of said amount is unreasonable because the P1.8 million VAT deduction was not part of the original program of work. It is much to our regret, however, that we cannot give due course to your request as we are merely following the mandate of RA 7649 as implemented by BIR Revenue Regulation No. 10-93. It bears stressing that RA 7649, approved April 06, 1993, amended Section 110 of the National Internal Revenue Code by adding a new paragraph (c) thereto such that it now reads: "(c) Withholding of Creditable Value-Added Tax . The government or any of its political subsidiaries, instrumentalities, or agencies, including government-owned or controlled corporations (GOCCs) shall, before making payment on account of its purchase of goods from sellers and services rendered by contractors which are subject to the value-added tax imposed in Sections 100 and 102 of this Code, deduct and withhold the value-added tax at the rate of three percent (3%) of the gross payment for the purchase of the goods and six percent (6%) on gross receipts for services rendered by contractors on every release or installment payment which shall be creditable against the value-added tax liability of the seller or contractor. . . The value-added tax withheld under this section shall be remitted within ten (10) days following the end of the month the withholding was made." Relative thereto, Section 10 (b) of BIR Revenue Regulation No. 10-93 promulgated to implement RA 7649 provides, in essence, that any officer or employee of the government of the Republic of the Philippines or any of its agencies or instrumentalities who, being charged with the duty to deduct and withhold any internal revenue tax and to remit the same in accordance with these regulations, failed to deduct and withhold, and to remit the six percent (6%) creditable VAT as required by law, shall, upon conviction, suffer the penalty of a fine in the sum of P50,000 or imprisonment for a term of not less than six months and one day but not more than two years or both. It bears stressing that before the effectivity of RA 7649, the filing of return for the VAT and the payment thereof is the sole responsibility of the contractor and this Department has no participation whatsoever in the collection of the same. It is incumbent upon him to settle his legal obligation, if any, with the government. Our sole responsibility is merely on the settlement of the contract bid price. The fact, therefore, that the value-added tax of 10% was included or not in the contract price is not our concern for in any case, your firm will have to pay its legal obligation on the VAT based on the return that you will file with the Commissioner of Internal Revenue pursuant to Section 110 (a) of the NIRC. In view, however, of the foregoing, provisions of law and existing BIR Revenue Regulation, this Department is left without any choice but to effect the deduction and withholding of the amount therein required believing in good faith that the transaction is one subject to the value-added tax imposed in Section 102 of the NIRC since it involves the payment of money for services rendered by contractors. Moreover, the amount has already been remitted to an accredited bank in accordance with aforesaid law and the BIR Revenue Regulation. Such being the case, this Department has no more control over the same in order to accede to your request. Therefore, we suggest that proper recourse be just taken by your firm in accordance with the legal remedies available under the circumstances, particularly Sections 230, 104 and 106 of the NIRC. Hope this would enlighten you to understand our position on the matter. Mabuhay and warm regards. Very truly yours, (SGD.) MANUEL R. SANCHEZ Acting Secretary Department of Interior and Local Government