BIR Prescribes the Presentation of Tax Clearance Prior to Final Settlement of Government Contracts

The Bureau of Internal Revenue (“BIR”) issued Revenue Regulations No. 17-2024 to strengthen and fully achieve the objectives and implementation of Executive Order (“EO”) No. 398, series of 2005 and the Implementing Rules and Regulations (“IRR”) of Republic Act (“RA”) No. 9184 or “The Government Procurement Reform Act.”

EO No. 398 and the IRR of RA No. 9184 direct that among the requirements of persons, natural or juridical, local or foreign, intending to enter into or participate in any contract with the government, its departments, bureaus, offices and agencies, including state universities and colleges, government-owned and/or controlled corporations, government financial institutions, and local government units (collectively referred to as the “Government”), is the submission of a tax clearance issued by the BIR.

In addition, Section 3 of the same EO also mandates the inclusion in all government contracts of a stipulation requiring the private contracting party to pay its taxes in full and on time and that failure to do so will entitle the government to suspend payment for any goods or service delivered by the private contracting party and requiring the regular presentation, within the duration of the contract, of a tax clearance from the BIR as well as a copy of its income business tax returns duly stamped and received by the BIR and duly validated with the tax payments made thereon.

Accordingly, Revenue Regulations No. 17-2024 requires all persons who have existing contracts with the government to secure from the BIR an updated tax clearance certifying that they have no outstanding tax liabilities and that they have duly filed the latest income and business tax returns and paid the corresponding taxes due thereon.

The said tax clearance shall then be presented by the private contractor to the concerned government department, bureaus, offices and agencies, including state universities and colleges, government-owned and/or controlled corporations, government financial institutions and local government units prior to the final settlement of the contract entered with them.

Revenue Regulations No. 17-2024 further provides that failure to secure and present the requisite tax clearance shall entitle the government to suspend the final settlement for any goods or services including infrastructure projects, delivered by the contractor.

Such suspended amount of final settlement, including the retention money required pursuant to RA No. 9184 and its IRR, shall be subject to tax lien as may be warranted in favor of the government to satisfy the contractor’s outstanding tax liabilities. In which case, the existing guidelines and procedures on distraint and garnishment shall apply.