VAT Ruling No. 081-90

March 23, 1990 VAT RULING NO. 081-90 2nd Indorsement February 9, 1990 Respectfully returned to the Honorable, the Secretary of Finance, Manila, Attn.: Mr. Antonio P. Belicena, Director, Revenue Office, the within papers bearing on the request of Fischer Engineering and Maintenance Co., Inc. (FEMCO), a contractor of the Department of Public Works and Highways, for a ruling on the application of the 10% value-added tax on government road construction entered into before the effectivity of the VAT law on January 1, 1988. prll On June 2, 1988, this Office ruled, among others, that "in the case of contracts entered into prior to January 1, 1988 and not completed as of December 31, 1987 and, therefore, payments made thereon are made after said date, then, the receipts derived by the contractor are subject to the 10% VAT. [However, if the contractor will request for cost adjustment to cover VAT you may reasonably grant an adjustment of 6% only corresponding to the difference between the 10% VAT and the 4% contractor's tax]. (BIR Ruling No. 226-88) On July 31, 1989, this Office ruled that "there seems to be no basis for the contractor's request for cost adjustment of 6% to cover of VAT." Accordingly, the abovequoted ruling (bracketed portion of BIR Ruling No. 226-88), insofar as it enjoins the contractee to grant an adjustment of 6% to correspond to the difference between the 10% VAT and the 4% contractor's tax, is hereby set aside." (BIR Ruling No. 0158-89). It appears that FEMCO, on October 15, 1987, entered into a contract with the DPWH for the Bridge Reconstruction Project under IBRD Roads and Improvement Program, and for repairs and restoration works of the Tagaytay-Batangas Road Project; that implementation of the aforesaid projects were started only in February and May 1988 when the value-added tax was already enforced. Under the foregoing circumstances, receipts derived by FEMCO in the aforesaid projects are subject to the 10% value-added tax prescribed in Section 102(a) of the Tax Code. LLpr Very truly yours, JOSE U. ONG Commissioner of Internal Revenue