BIR frees OECF-funded projects from VAT
PH gov’t to shoulder tax
In time for the visit of Japan Prime Minister Shinzo Abe to the Philippines, the Bureau of Internal Revenue (BIR) reversed its earlier ruling that imposes a consumption tax on all government projects funded by Japanese companies.
Under Revenue Memorandum Circular (RMC) 8-2017, the BIR decided to exempt Japan-funded projects under the Overseas Economic Cooperation Fund (OECF) from paying the 12 percent value-added tax (VAT).
Instead, the BIR ruled that “all taxes associated with the project shall be assumed by the executing government agencies.”
According to the BIR, it is the obligation of the Philippine government to shoulder the VAT based on the OECF rules.
“The VAT-registered suppliers and sub-contractors of the Japanese companies shall bill and pass on the 12 percent VAT to the Japanese companies/contractors,” the BIR circular read.
“In turn, the Japanese contractors shall include in their billing and pass on the 12 percent VAT to the concerned executing agencies of the Republic of the Philippines,” the document further stated.
Last September, Japanese businessmen sought help from Finance Secretary Carlos G. Dominguez III regarding BIR regulations on the withholding system for VAT on projects funded by Japan’s OECF.
Following Dominguez’s meeting with the businessmen, he instructed BIR Commissioner Caesar R. Dulay to prioritize the resolution of the issues involving Revenue Memorandum Circular 45-2015.
In August 2015, then BIR Commissioner Kim S. Jacinto-Henares issued RMC No. 45-2015, which upheld the application and validity of Republic Act No. 9337 for government payments under OECF-funded projects.
Citing an earlier exchange of notes between the governments of the Philippines and Japan, Jacinto-Henares had said the Philippine government would assume the final withholding VAT worth 5.0 percent of the gross payment.
This is to be paid out of government coffers or by pertinent agencies as a final settlement of the tax due on the income received by Japanese contractors.
As such, Japanese contractors of OECF-funded projects were not allowed to include in their billings the entire 12 percent VAT to be assumed by the Philippine government.