Italian-Thai Development Public Company Limited

August 17, 2007 VAT RULING NO. 011-07 R.A. 9337 VAT Ruling No. 077-2001 Italian-Thai Development Public Company Limited Coastal Road, Brgy. San Dionisio Paraaque City Attention: Mr. Panya Visetnut Operations & Country Manager Gentlemen : This refers to your letter dated May 5, 2006 requesting for a ruling on the adjustment of Contract Price due to the erroneous VAT computation. It is your opinion that an adjustment to the contract price must be effected as a result of an alleged erroneous VAT computation; that this is due to the Instruction to Bidder (ITB) that followed the Department of Public Works and Highways' Department Order wherein it applied the detailed unit price analysis; that the standard form was strictly followed in preparation of unit price wherein 10% VAT was applied on equipment and labor only; that tax payments were remitted quarterly; and that you request that the VAT be applied to the direct cost, indirect cost, contingencies and profit which was confirmed by the DPWH Legal Service in its opinion dated May 25, 2005. In reply, please be informed that pursuant to Section 108 of the Tax Code of 1997, it is provided that "There shall be levied, assessed and collected, a value-added tax equivalent to ten percent (10%) (now 12%) of gross receipt derived from the sale or exchange of services, including the use or lease of properties". The term "gross receipts" means "the total amount of money or its equivalent representing the contract price, compensation, service fee, rental or royalty, including the amount charged for materials supplied with the services and deposits and advanced payments actually or constructively received during the taxable quarter for the services performed or to be performed for another person, excluding the value-added tax". ISHCcT It is clear from the abovementioned definition of "gross receipts" that VAT is not only imposed on direct labor and equipment as what has been done in your submitted contract cost estimate but rather VAT is imposed on all cost items considered in arriving at the Approved Agency Estimate for DPWH Project. This necessarily includes not only labor and equipment but also materials (whether these are bought from VAT or non-VAT registered suppliers) and other cost items such as Contractors All Risk Insurance, overhead contingencies and miscellaneous (O.C.M.), and such other items considered in arriving at the Estimate Contract Price of a particular DPWH construction project. Accordingly, the correct computation of the VAT in line with the preparation of the "Approved Agency Cost Estimate", supposing additional cost for materials of P37,534.44 is imputed, shall be as follows: Detailed Price Analysis Particulars Total Cost A) Equipment P4,312.82 B) Labor 2,473.80 C) Materials 37,534.44 D) Total Direct Cost (A+B+C) P44,321.06 E) Contractors All Risk (2% of D) 886.42 F) O.C.M. (12% of D) 5,318.53 G) Profit (10% of D) 4,432.11 H) Total Cost Estimate (D+E+F+G) P54,958.12 I) Add: VAT (12% of H) 6,594.97 J) Total Contract Cost Estimate (H+I) P61,553.09 ======== This ruling is being issued on the basis of the foregoing facts as represented. If upon investigation, it will be disclosed that the facts are different, then, this Ruling shall be considered null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) GREGORIO V. CABANTAC Deputy Commissioner