VAT Ruling No. 046-00

October 26, 2000 VAT RULING NO. 046-00 111; 114 000-00 Ms. Ma. Socorro O. Lozano Asst. Chief, Special Investigation Division Bureau of Internal Revenue Revenue Region No. 17, Butuan City M a d a m : This refers to your letter dated November 25, 1999 requesting in effect, for a ruling on the following: 1. Whether money paid out of the mobilization fund and forming part of the gross receipts subject to VAT imposed in Section 108 of the Tax Code of 1997 is subject to the withholding of 8.5% pursuant to Section 114(C) of the Tax Code of 1997. 2. Can a contractor claim money paid out of the mobilization fund and forming part of the gross receipts as input tax the period it is reported as part of the taxable gross receipts. In reply, please be informed as follows: 1. Section 4.114 of Revenue Regulations No. 2-98 implementing Section 114(C) of the Tax Code of 1997 subjects to creditable VAT withholding at the rate of eight and one-half percent (8%) sale of services to the government made by "government public works contractors." For this purpose, the payor or person in control of the payment shall be considered as the withholding agent. Since in this case, the contractee is a government office, it shall deduct and withhold the above-mentioned tax before making any payments to the private contractor. The government office concerned is required to withhold the 8.5% tax on its gross payments which gross payments include the money paid out of the mobilization fund pursuant to Sec. 4.114(A) of Revenue Regulations No. 2-98. 2. Section 111(B)(2) of the Tax Code of 1997 provides that public works contractors shall be allowed a presumptive input tax equivalent to one and one-half percent (1) of the contract price with respect to government contracts only in lieu of actual input taxes therefrom. cISDHE Accordingly, a contractor can claim 1% input tax from money paid out of the mobilization fund and forming part of the gross receipts during the period it is reported as part of the taxable gross receipts, the said money being part of the contract price. Very truly yours, (SGD.) LILIAN B. HEFTI Deputy Commissioner Legal & Inspection Group