Treatment of VAT and Other Taxes Relative to the Contract for the 2nd Magsaysay Bridge and Butuan City Bypass Road Project

DOJ OPINION NO. 031 , s. 2005 July 19, 2005 Acting Secretary Hermogenes E. Ebdane, Jr. Department of Public Works and Highways Bonifacio Drive, Port Area Manila Sir : This refers to your request for opinion on the treatment of the value-added tax (VAT) and other duties/taxes relative to the Contract for the 2nd Magsaysay Bridge and Butuan City Bypass Road Project (PH-P216) funded under a Special Yen Loan Package from the Japan Bank for International Cooperation (JBIC). The request, it appears, was precipitated by the alleged difference in opinion on the said issue between Mr. Osamu Murata, Chief JBIC Representative, and your department's Legal Service. dojcd06 Your Legal Service is of the position that the Japanese contractor's bid and, consequently, the contract amount of the approved contract agreement for the above-captioned project is "inclusive of taxes and other duties and the same should be deducted on the JV's (joint venture's) billings . . .." The Chief JBIC Representative, however, believes that the VAT shall not be included in the bid price and that it shall be assumed and borne by the Government. 1 The Philippine Japan Highway Loan-Project Management Office (PJHL-PMO), the implementing office in your Department for the said Project, shares Mr. Murata's view stating that pursuant to the August 25, 2000 Exchange of Notes 2 between the Japanese Government and the Republic of the Philippines regarding JBIC funded projects, Japanese contractors or nationals are not required to shoulder taxes associated with the Project, hence taxes shall be shouldered and borne by the executing agencies; and that, accordingly, the respective bid amount submitted by the Japanese bidders does not include the 10% VAT. Hence, this query. With regret, this Department has to decline rendition of the opinion requested. The issue affects the substantive rights of private parties, particularly the winning bidder, Nippon Steel-TOA (JV), upon which this Department's opinion has no binding force and which might, in all probability, contest such opinion before the courts if it turns out to be adverse to their interests. This Department does not render an opinion or give legal advice on a matter that is justiciable or which may be the subject of a judicial controversy. 3 Moreover, the issue raised the proper treatment of taxes, duties, etc. insofar as Japanese contractors are concerned and if the same should be included in the bid price, fall within the primary jurisdiction of the Bureau of Internal Revenue (BIR), Bureau of Customs (BoC), and the Government Procurement Policy Board (GPPB), respectively, with the GPPB having a broad legal mandate to "protect national interest in all matters affecting public procurement." 4 The Secretary of Justice has consistently desisted from expressing his views on matters that fall within the authority of another office over which he possesses no revisory authority, unless his opinion is requested by such office or agency. This rule arises not only from practical considerations, but also out of due respect and deference for the competence and expertise of the office having primary jurisdiction to resolve the matter and for its familiarity with the policy repercussions of the question as well as from a logical recognition of the lawful exercise of an authority conferred by law. 5 It is therefore suggested that the issue involved be addressed to the BIR, BoC and GPPB, respectively. Very truly yours, (SGD.) RAUL M. GONZALEZ Secretary Footnotes 1. See September 16, 2004 letter of Mr. Osamu Murata, JBIC Chief Representative, to then DPWH Secretary Florente Soriquez. 2. 5.(1) The Government of the Republic of the Philippines will exempt: xxx xxx xxx (b) Japanese companies operating as suppliers, contractors and/or consultants from all duties and related fiscal charges imposed in the Republic of the Philippines with respect to the import and re-export of their own materials and equipment required for the implementation of the projects enumerated in the List (2) The Government of the Republic of the Philippines will, by itself or through its executing agencies, assume: (a) all fiscal levies and taxes imposed in the Republic of the Philippines on the Japanese companies operating as suppliers, contractors and/or consultants with respect to the income accruing from the supply of the products and/or services required for the implementation of the projects enumerated in the List; . . . (3) In connection with such tax assumption, the Government of the Republic of the Philippines or its executing agencies will be responsible for the liquidation or settlement of such fiscal levies, duties, taxes and other similar charges. 3. Department of Justice Opn. No. 5, s. 2004; No. 89, s. 2003; and No. 43, s. 2001. 4. Id ., No. 102, s. 2004 5. Id ., No. 16, s. 2003, citing other DOJ Opinion.