WITHHOLDING TAX, VAT, AND OTHER TAX FOR CONSULTANCY SERVICES

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WITHHOLDING TAX, VAT, AND OTHER TAX FOR CONSULTANCY SERVICES

Post by riddler on Tue May 12, 2009 12:51 pm

This is with regards to the claim of our Consultants for additional budget/fund to cover Value Added Tax (VAT) separate from the Contract Price. Consultancy bidding was made last 2005 and the contract was approved by both parties on January, 2006. The name of project is CONSULTANCY FOR DESIGN AND SUPERVISION SERVICES of our LGU building. May I present the following series of events which led to our disagreements with our Consultant;

The Consultant claimed that VAT was not reflected in our “pro-forma” FPF 4 Breakdown of Remunerations and FPF 3 Breakdown of Prices as amended by SF-CONS-55, SF-CONS-56B. These previously downloaded documents from the GPPB were sold to all bidders during the Issuance of our Bid Documents. Accordingly, VAT is not clearly indicated in the GPPB BID forms and the Consultant suggested to re-negotiate the Contract that would include the VAT.

But, the Consultant acknowledged the contents of the Philippine Bidding Documents (PBD) they bought from us, specifically on Instruction to Bidders (ITB) Clauses,

14.1 The Consultant shall be subject to Philippine Taxes on the amounts payable by the PROCURING ENTITY under the Contract through mandated withholding by local tax authorities of specified percentages of such amounts or otherwise. The BDS details the taxes payable.

“Clause 14.1 of the Bid Data Sheet (BDS). The consultants are subject to Withholding Tax, Local Taxes, and other applicable tax.”

14.2 The Financial Proposal should clearly estimate, as a separate amount, the local taxes (including social security), duties, fees, levies, and other charges imposed under the applicable law, on the CONSULTANTS, XXXXXXXXXXXX.

The Procuring Entity disapproved the claims of the Consultant pursuant to the aforementioned clauses of our Contract, contending that VAT is a form of Withholding as specified in Clause 14.1 of the BDS.

Is the Procuring Entity decisions correct?

While it is true that the downloaded GPPB forms does not content provisions for VAT in the FPF forms, Can the consultant be allowed to claim a separate amount for VAT on top of the Contract Price in pursuant to Clauses 9 and 10 of our Bid Documents contract?

Clause 9, Sec. 9.1 This contract contains covenants, stipulations and provisions agreed by the Parties. No Agent or Representative of either party has authority to make statement, representation, promise, or agreement not set forth herein of which the Parties shall not be bound by or be liable for.

Clause 10, Sec. 10.1 Unless otherwise specified in the SCC (not specified in our SCC), no modification of the terms and conditions of the Contract, including any modification of the scope of Services shall be allowed. Pursuant to GCC clause 14 hererof, however, each Party shall give due consideration to any proposal for modification made by the other Party.

cAN the above clauses be use to insert VAT in our contract?

Secondly, Time Extensions has been granted to the Contractor by the Procuring Entity, are the Consultant allowed to claim additional Consultancy Budget/Amount due to Time Extension without violating Clause 2 of the Cost of Consulting Services of the IRR-A of RA 9184 ANNEX “F” CONTRACT IMPLEMENTATION GUIDELINES FOR THE PROCUREMENT OF CONSULTING SERVICES?

“Clause 2. Cost of Consulting Services

All Consultancy contracts shall be fixed price amounts. Any extension of contract time shall not involve any additional cost.

Can the Procuring Entity allowed to provide additional funds for time extensions for consultancy services?



P.S.

I appreciate the reply of RDV in his private message to me. I hope he can still expand his opinion to this query now that i am putting this matter ONLINE for discussion in this helpful forum.

I think this letter is clearer now than the one I sent to RDV.

To all of you guys, kindly share your thoughts to our LGU concern b4 the parties reach the Construction Industry Arbitrary Commission (CIAC). many Thanks. Mad


Last edited by ruel t. on Wed May 13, 2009 10:16 am; edited 2 times in total
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Re: WITHHOLDING TAX, VAT, AND OTHER TAX FOR CONSULTANCY SERVICES

Post by RDV @ GP3i on Tue May 12, 2009 2:41 pm

ruel t. wrote:This is with regards to the claim of our Consultants for additional budget/fund to cover Value Added Tax (VAT) separate from the Contract Price. Consultancy bidding was made last 2005 and the contract was approved by both parties on January, 2006. The name of project is CONSULTANCY FOR DESIGN AND SUPERVISION SERVICES of our LGU building. May I present the following series of events which led to our disagreements with our Consultant;

The Consultant claimed that VAT was not reflected in our “pro-forma” FPF 4 Breakdown of Remunerations and FPF 3 Breakdown of Prices as amended by SF-CONS-55, SF-CONS-56B. These previously downloaded documents from the GPPB were sold to all bidders during the Issuance of our Bid Documents. Accordingly, VAT is not clearly indicated in the GPPB BID forms and the Consultant suggested to re-negotiate the Contract that would include the VAT.

But, the Consultant agreed on the contents of the Philippine Bidding Documents (PBD) they brought from us, specifically on Instruction to Bidders (ITB) Clauses,

14.1 The Consultant shall be subject to Philippine Taxes on the amounts payable by the PROCURING ENTITY under the Contract through mandated withholding by local tax authorities of specified percentages of such amounts or otherwise. The BDS details the taxes payable.

“Clause 14.1 of the Bid Data Sheet (BDS). The consultants are subject to Withholding Tax, Local Taxes, and other applicable tax.”

14.2 The Financial Proposal should clearly estimate, as a separate amount, the local taxes (including social security), duties, fees, levies, and other charges imposed under the applicable law, on the CONSULTANTS, XXXXXXXXXXXX.

The Procuring Entity disapproved the claims of the Consultant pursuant to the aforementioned clauses of our Contract, contending that VAT is a form of Withholding as specified in Clause 14.1 of the BDS.

Is the Procuring Entity decisions correct?

I think, engr. ruel, your procuring entity is correct.

First, as to Financial Proposal Form No. 3 (Breakdown of Price per Activity), the VAT is not really part of the form. FPF No. 4 is just a breakdown of the Remuneration under FPF No. 3. Local taxes, including the VAT, should however be indicated in the Summary under FPF No. 2. It is very clear in the FPF No. 2 that the shortlisted bidder has to include the cost of local taxes over and above the breakdown of the costs per activity under FPF No. 3.

Second, the clauses under the ITB/BDS form part of the contract, therefore, the winning consultant is bound by those provisions on the inclusion of local taxes which he acknowledges anyway.

ruel t. wrote:[While it is true that the downloaded GPPB forms does not content provisions for VAT in the FPF forms, Can the consultant be allowed to claim a separate amount for VAT on top of the Contract Price in pursuant to Clauses 9 and 10 of our Bid Documents contract?

Based on my answers to the first question, my answer is NO.

ruel t. wrote:Clause 9, Sec. 9.1 This contract contains covenants, stipulations and provisions agreed by the Parties. No Agent or Representative of either party has authority to make statement, representation, promise, or agreement not set forth herein of which the Parties shall not be bound by or be liable for.

Clause 10, Sec. 10.1 Unless otherwise specified in the SCC (not specified in our SCC), no modification of the terms and conditions of the Contract, including any modification of the scope of Services shall be allowed. Pursuant to GCC clause 14 hererof, however, each Party shall give due consideration to any proposal for modification made by the other Party.

cAN the above clauses be use to insert VAT in our contract?

I would rather look at it this way. The contract contains the stipulations, clauses in the bidding documents, such as the ITB and BDS. Since these documents already contain the proviso that taxes should be included, then the Consultant cannot insist that they are not included.

ruel t. wrote:Secondly, Time Extensions has been granted to the Contractor by the Procuring Entity, are the Consultant allowed to claims additional Consultancy Budget/Amount due to Time Extension without violating Clause 2 of the Cost of Consulting Services of the IRR-A of RA 9184 ANNEX “F” CONTRACT IMPLEMENTATION GUIDELINES FOR THE PROCUREMENT OF CONSULTING SERVICES?

“Clause 2. Cost of Consulting Services

All Consultancy contracts shall be fixed price amounts. Any extension of contract time shall not involve any additional cost.

[b]Can the Procuring Entity allowed to provide additional funds for time extensions for consultancy services?
P.S.
Since the matter is only a time extension, the consultant should shoulder the costs of the time extension, such as the additional remuneration that the consultant needs to pay to its staff. However, if the reason for the time extension is due to the fault of the procuring entity, the consultant may be paid for the additional cost on a "no loss, no gain" basis.
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Re: WITHHOLDING TAX, VAT, AND OTHER TAX FOR CONSULTANCY SERVICES

Post by riddler on Wed May 13, 2009 7:59 am

RDV quote

"First, as to Financial Proposal Form No. 3 (Breakdown of Price per Activity), the VAT is not really part of the form. FPF No. 4 is just a breakdown of the Remuneration under FPF No. 3. Local taxes, including the VAT, should however be indicated in the Summary under FPF No. 2. It is very clear in the FPF No. 2 that the shortlisted bidder has to include the cost of local taxes over and above the breakdown of the costs per activity under FPF No. 3.

Second, the clauses under the ITB/BDS form part of the contract, therefore, the winning consultant is bound by those provisions on the inclusion of local taxes which he acknowledges anyway. "


RDV, what about if in the FPF 2 only local taxes was included? Because the cONSULTANT claimed that the VAT is not indicated in the FPF forms, yet they acknowledged that they are subjected to WITHHOLDING TAX.

Is their a difference between Withholding Tax and VAT? I have tried to ask this to my previous posts before, pero ang sagot ata halos naka focus sa withholding tax on personal income.

What are really the components of Withholding Tax for Consultancy to be reflected in its claim voucher?

Is it 2% personal income (Company)
5% Value added TAX
total 7% as appeared in the voucher? confused confused
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Re: WITHHOLDING TAX, VAT, AND OTHER TAX FOR CONSULTANCY SERVICES

Post by RDV @ GP3i on Wed May 13, 2009 10:36 am

ruel t. wrote:RDV, what about if in the FPF 2 only local taxes was included? Because the cONSULTANT claimed that the VAT is not indicated in the FPF forms, yet they acknowledged that they are subjected to WITHHOLDING TAX.

Is their a difference between Withholding Tax and VAT? I have tried to ask this to my previous posts before, pero ang sagot ata halos naka focus sa withholding tax on personal income.

What are really the components of Withholding Tax for Consultancy to be reflected in its claim voucher?

Is it 2% personal income (Company)
5% Value added TAX
total 7% as appeared in the voucher? confused confused

The term "local taxes" is a generic term that would include all possible national taxes under the NIRC and taxes imposed by LGUs. Therefore, it would include income taxes, excise taxes, value added taxes, and other local taxes. I hope it is quite clear in the following ITB provision:

14. Taxes and Duties

14.1. The CONSULTANT shall be subject to Philippine taxes on amounts payable by the PROCURING ENTITY under the contract through mandated withholding by local tax authorities of specified percentages of such amounts or otherwise. The BDS details the taxes payable.

14.2. The Financial Proposal should clearly estimate, as a separate amount, the local taxes (including social security), duties, fees, levies, and other charges imposed under the applicable law, on the CONSULTANTS, the subcontractors, and its personnel (other than Philippine Nationals or permanent residents of the Philippines).


Witholding taxes are part of those taxes, which are collected in advance (withheld) by the procuring entity to be remitted later to the collecting agency (BIR). That is very much clear in the following definitions which I got from the BIR website:

-Withholding Tax on Compensation is the tax withheld from income payments to individuals receiving purely compensation income arising from an employer-employee relationship.

- Expanded Withholding Tax is a kind of withholding tax which is prescribed only for certain payors and is creditable against the income tax due of the payee for the taxable quarter/year.

- Final Withholding Tax is a kind of withholding tax which is prescribed only for certain payors and is not creditable against the income tax due of the payee for the taxable year. Income Tax withheld constitutes the full and final payment of the Income Tax due from the payee on the said income.

- Withholding Tax on Government Money Payments (GMP) is a tax withheld by government bureaus, offices and instrumentalities, including government-owned or-controlled corporations and local government units, before making any payments to private individuals, corporations, partnerships and/or associations.

-Withholding Tax on GMP Percentage Taxes - is the tax withheld by government bureaus, offices and instrumentalities, including government-owned or -controlled corporations and local government units, before making any payments to private individuals, corporations, partnerships and/or associations from non-VAT taxpayers

-Withholding Tax on GMP VAT Taxes - is the tax withheld by government bureaus, offices and instrumentalities, including government-owned or -controlled corporations and local government units, before making any payments to private individuals, corporations, partnerships and/or associations who are VAT registered.


In the case of consulting services, the consultants and staff are liable to pay income taxes which the procuring entity can already withheld for remittance directly to the BIR. The consulting firm is also liable to pay VAT which could also be withheld by the procuring entity.
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Re: WITHHOLDING TAX, VAT, AND OTHER TAX FOR CONSULTANCY SERVICES

Post by shobe on Wed May 13, 2009 11:24 am


Arrow Value Added Tax is a business tax imposed and collected from the seller in the course of trade or business on every sale of properties (real or personal) lease of goods or properties (real or personal) or vendors of services. It is an indirect tax, thus, it can be passed on to the buyer.


Arrow Withholding Tax on Government Money Payments is the withholding tax withheld by government offices and instrumentalities, including government-owned or -controlled corporations and local government units, before making any payments to private individuals, corporations, partnerships and/or associations.

I am currently a consultant for a government agency and a private consultancy firm, both of which withholds ten percent (10%) of my total monthly income. So i think for consultants, ten percent is the standard tax to be withheld (depending, i heard, on the annual gross income of a particular consultant). Maybe it would be better if you direct your query to the Bureau of Internal Revenue Mr. Ruel. I have once asked help through a phone inquiry and they were most helpful in telling me the legal and practical solutions to my query.
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Re: WITHHOLDING TAX, VAT, AND OTHER TAX FOR CONSULTANCY SERVICES

Post by riddler on Wed May 13, 2009 4:32 pm

now I agree with you both Shobe and RDV. Our Accountant computed the total percentage withholding deduction from the Billing this way;

2 % Income Tax
5 % Withholding Tax due to VAT
7 % Total Withholding Deduction (LGU mandatory deduction)
5 % this Tax is to be personally/directly remitted by the
Consultant to the BIR (not mandatory LGU deduction)

12% gross total dededuction, although 7% lang ang dine-deduct ng LGU.


What I am really concerned is the notice from the Consultant to demobilize their personnel because of our disagreement on the Withholding TAX and payment for their contract extension, although it really clear in the BDS Clause 14.1 and the ITB.

The possible scenario that may happen is that the project maybe suspended because of the impasse. Our Contractor may ask for additional Amount for the suspension which is partly cause by the Consultants... Our LGU project maybe held in abeyance.

to Shob and RDV..thanks.
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Re: WITHHOLDING TAX, VAT, AND OTHER TAX FOR CONSULTANCY SERVICES

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