VAT on Government Transactions and Withholding of Creditable Value-Added Tax

• Government as buyer of goods / services:
  • Government like any ordinary buyer pays for VAT that is passed on by VAT seller of goods and services
    • Sale of goods and services to government is subject to 12% VAT
    • Government shall, for each payment, deducts and withholds CREDITABLE VAT of 5% from its gross payment to VAT-registered seller.
  • Treatment :
    • the same as VATable Sales/Purchases of Goods and Services

Laws on VAT Withholding

(C) Withholding of Creditable Value-added Tax. - 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 and services which are subject to the value-added tax imposed in Sections 106 and 108 of this Code, deduct and withhold the value-added tax imposed in Sections 106 and 108 of this Code, deduct and withhold a final value-added tax at the rate of five percent (5%) of the gross payment thereof: Provided, That beginning January 1, 2021, the VAT withholding system under this Subsection shall shift from final to creditable system:  Provided, further, That the payment for lease or use of properties or property rights to nonresident owners shall be subject to ten percent (12%)  withholding tax at the time of payment. Provided, finally, That payments for purchases of goods and services arising from projects funded by Official Development Assistance (ODA) as defined under Republic Act No. 8182, otherwise known as the Official Development Assistance Act of 1996, as amended, shall not be subject to the final withholding tax system as imposed in this Subsection.  For purposes of this Section, the payor or person in control of the payment shall be considered as the withholding agent.

The value-added tax withheld under this Section shall be remitted within ten (10) days following the end of the month the withholding was made.