VAT Ruling No. 037-03

September 8, 2003 VAT RULING NO. 037-03 Sec. 114 (C) 000-00 Office of the Secretary Department of Health San Lazaro Compound Rizal Avenue, Sta. Cruz M A N I L A Attention: Arch. Ma. Rebecca M. Peafiel, CESO IV Director III Gentlemen : This refers to your letter dated August 24, 2000 requesting clarificatory ruling as to whether or not government infrastructure projects fall under the term "public works" and therefore subject to the 8.5% creditable value-added tax imposed under Section 114(C) of the Tax Code of 1997. In reply thereto, please be informed that Section 114(C) of the Tax Code of 1997 provides that the Government or any of its political subdivisions, instrumentalities or agencies, including government-owned or controlled corporations (GOCCs) shall, before making payment on account of each purchase of goods from sellers and services rendered by contractors which are subject to the value-added tax imposed in Sections 106 and 108 of the said Code, deduct and withhold the value-added tax due at the rate of three percent (3%) of the gross payment for the purchase of goods and six percent (6%) on gross payment for services rendered by contractors on every sale or installment payment which shall be creditable against the value-added tax liability of the seller or contractor: Provided, however, That in the case of government public works contractors, the withholding tax rate shall be eight and one half percent (8.5%) . . . The meaning of the term "Public Work" as used in Act August 13, 1894, c.280, 28 Stat. 278, 40 U.S.C.A. & 270, giving a right of action to persons only supplying labor and materials for the construction of any public building, or the prosecution and completion of any public work, or for repairs upon any public building, or public work, is broader and more comprehensive than the dictionary meaning given to public works. "Public work" as used in the Act is susceptible of application to any constructive work of a public character, and is not limited to fixed works. ( U.S. to Use of Standard Furniture Co., v. Henningsen, 82 P. 171, 173, 40 Wash. 87 ) Such being the case, this Office is of the opinion as it hereby holds that infrastructure projects fall within the definition of public works and is therefore subject to the 8.5% creditable VAT as prescribed under Section 114(C) of the Tax Code of 1997. Consequently, the government agency concerned shall withhold and remit the 8.5% creditable VAT within ten (10) days following the end of the month the withholding was made. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. AEHTIC Very truly yours, (SGD.) GUILLERMO L. PARAYNO, JR. Commissioner of Internal Revenue