THE Commission on Audit has denied a private contractor’s P11.04 million compensation claim against the Department of Public Works and Highways (DPWH) for supposed payment of Value-Added Tax (VAT) differential.
In a six-page decision released last week, the COA Commission Proper said that Shinsung Engineering and Construction Company Ltd.’s claim has no basis since the contractor’s net VAT payable on government projects remained pegged at five percent of gross payments even after RA No. 9337 or the Expanded VAT Law took effect on February 1, 2006.
Shinsung Engineering claimed it is entitled to be reimbursed for VAT differential since the increase of VAT from 10 percent to 12 percent affected the contract price of the P1.48 billion Package III, or the construction/improvement of Monkayo-Tagum Section, Philippine-Japan Friendship Highway Mindanao Section Rehabilitation Project Phase II.
The project, located in the Provinces of Compostela Valley and Davao del Norte, was 90 percent funded by a loan from the Japan Bank of International Cooperation (JBIC) with the remaining 10 percent to be funded by the Philippine government.
However, due to variation orders, the final contract cost increased to P1.51 billion by the time it was completed on June 6, 2007 and accepted by the DPWH on September 1, 2008.
Shinsung Engineering said it remitted P72.84 million representing 12 percent VAT to the Bureau of Internal Revenue but the DPWH only allowed inclusion of 10 percent VAT equivalent to P61.805 million hence, the claim for reimbursement.
“This Commission disagrees. While RA No. 9337, increased the VAT rate from 10 percent to 12 percent of the gross payments, Section 22 of BIR Revenue Regulation (RR) No. 4-2007 dated February 7, 2007 provides that the Net VAT Payable of the contractors on government purchases remains at 5 percent of the gross payments,” the COA pointed out.
Auditors noted that the Net VAT payable of the contractor is considered paid when the government withholds the five percent Final VAT from its payment so that there should be no VAT differential to speak of.
Likewise, under the contract agreement and other related documents, there was no specific provision assigning upon the DPWH the obligation to pay the VAT rate increase implemented.
