VAT Ruling No. 018-91

March 19, 1991 VAT RULING NO. 018-91 National Kidney Institute East Avenue, Quezon City Attention: Filoteo A . Alano, M . D . , Executive Director Gentlemen : This refers to your letter dated September 26, 1990 requesting information whether your building contractor can compel you to pay an additional 10% of your contract price because of the 10% Value-Added tax law. It is represented that the National Kidney Institute, a government-owned and controlled corporation, entered into a contract with N.C. Roxas, Inc. in the year 1988 for the construction of the former's annex building. The said building had been 100% completed as at date of your query. The stipulated contract price is P951,011.23. The contract provides that the said contract price (i.e., the amount of P951,011.23) shall not be subject to any upward adjustment due to any fluctuation of the peso vis-a-vis the US dollar, cost of labor, or any other cost or reason whatever. prcd Please be informed that the said contractor is engaged in the business of selling services hence subject to the value-added tax law pursuant to the provisions of Sections 99 and 102, NIRC. The 10% VAT imposed under this law is a tax for which the seller is liable. By operation of law this 10% VAT is, however, passed-on to the buyer regardless of whether or not the tax amount is separately billed in the seller's VAT sales invoice. Accordingly, whatever amount is billed by the seller from the buyer always includes the 10% VAT. The only exceptions to this rule are if the sale transaction is subject to zero-rated VAT or if the sale transaction is VAT-exempt. (Please see attached copy of VAT Ruling No. 256-89, issued October 13, 1989) Your contractor's sale of service is neither subject to zero-rated VAT nor VAT-exempt. It follows, your said contractor is subject to 10% VAT. This tax, by operation of law, is always deemed included in the total amount billed by the contractor, i.e., whatever amount you pay to your contractor always includes the 10% VAT except only where your said contractor vis-a-vis his sale transaction with you is either VAT-exempt or subject to zero-rated VAT. Thus, if your contract calls for payment of P951,011.23 your payment of such amount to your contractor already includes the 10% VAT which, pursuant to Sec. 13(2) of Rev. Regs. No. 5-87, shall be equivalent to 1/11th of P951,011.23. This Office has no competent jurisdiction to resolve whether, based on your existing contract, your contractor can compel you to pay an additional 10% of your said contract price since this issue is not a tax matter but rather an issue that can be resolved by the terms of your contract. prll Very truly yours, JOSE U. ONG Commissioner of Internal Revenue