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The withholding tax system is embedded in the income tax system in the Philippines to
ease the administration and collection of taxes. It is not a “separate” kind of tax, as
withholding tax is simply a way of collecting tax from the source (Ingles, 2015).
Taxes imposed or prescribed by the NIRC are to be deducted and withheld by the payor-
corporations and/or persons from payments made to payee-corporation and/or persons
for the former to pay the same directly to the BIR. (Domondon, 2013).
It is a method of collecting income tax in advance form the taxable income of the recipient
of income. Thus, the taxes are collected practically at the same time the transaction is
made or when the taxable act occurs. It is taxation at source.
The duty to withhold is different from the duty to pay income tax. Indeed, the revenue
officers generally disallow the expenses claimed as deductions from gross income, if no
withholding tax as required by law or regulations was withheld and remitted to the BIR
within the prescribed dates (Mamalateo, 2008).
Indirect taxes, like VAT and excise tax, are different from withholding taxes. To distinguish, in
indirect taxes, the incidence of taxation falls on one person but the burden thereof can be shifted
or passed on to another person, such as when the tax is imposed upon goods before reaching the
consumer who ultimately pays for it. On the other hand, in case of withholding taxes, the incidence
and burden of taxation fall on the same entity, the statutory taxpayer. The burden of taxation is
not shifted to the withholding agent who merely collects, by withholding, the tax due from income
payments to entities arising from certain transactions and remits the same to the government
(Asia International Auctioneers, Inc. v. CIR, 2012).
When to withhold
It arises at the time an income payment is paid or payable or accrued or recorded as an expense
or asset, whichever is applicable in the payor’s books, whichever comes first (R.R. 2-98, Sec.
2.57.4, as amended by R.R. 12-2001).
The term “payable” refers to the date the obligation becomes due, demandable or legally
enforceable (R.R. 2-98, Sec. 2.57.4, as amended by R.R. 12-2001).
It is withheld by withholding agents and it shall be covered by a return and paid to (except in cases
where the Commissioner otherwise permits) an authorized agent bank, revenue district office,
collection agent, or duly authorized treasurer of the city or municipality where the withholding
agent has his legal residence or principal place of business, or where the withholding agent is a
corporation, where the principal office is located (NIRC, as amended by TRAIN Law, Sec. 58(A)).
Withholding agent
Sec. 22(k). The term “withholding agent” means any person required to
deduct and withhold any tax under the provisions of Section 57.
A withholding agent is not the payor but a separate entity acting no more than an agent of the
government for the collection of tax in order to ensure its payments. The payor of the tax is the
taxpayer as he is the person subject to the tax imposed by law, and payee is the taxing authority.
The withholding taxes shall be withheld by the person having control over the payment and who
at the same time claims the expenses. The following persons are constituted as withholding
agents:
1. Juridical person, whether or not engaged in trade or business;
2. Individuals, with respect to payments made in connection with his trade or business;
3. Individual buyers, whether or not engaged in trade or business insofar as taxable sale,
exchange or transfer of real property is concerned; and
4. All government offices including GOCCs as well as provincial, city and municipal
governments and barangay (R.R. 2-98, Sec. 2.57.3).
If the withholding agent is the Government of the Philippines or any of its agencies,
political subdivisions or instrumentalities, or a government-owned or controlled
corporation, the employee thereof responsible for withholding and remittance of the tax
shall be personally liable for the deficiency taxes (NIRC, as amended by TRAIN LAW, Sec.
247(b).
The withholding agent is the constituted agent both of the government and the taxpayer. In regard
to the filing of the necessary income tax return and the payment to the government, he is the agent
of the taxpayer. With respect to the collection and/or withholding of the tax, he is the governments
agent.
A withholding agent is explicitly made personally liable under Sec. 251 of the NIRC for the
payment of the tax required to be withheld, in order to compel the withholding agent to withhold
the tax under any and all circumstances. In effect, the responsibility for the collection of the tax
as well as the payment thereof is concentrated upon the person over whom the Government has
jurisdiction (Filipinas Synthetic Fiber Corporation v. CA, et al., G.R. Nos. 118498 & 124377,
October 12, 1999).
A withholding agent also has the legal interest to file a claim for refund for the following reasons:
1. He is considered a taxpayer under the NIRC as he is personally liable for the withholding
tax (as well as for deficiency assessment, surcharges, and penalties) should the amount of
tax withheld is less than what is required by law; and
2. As an agent of the taxpayer, his authority to file the necessary income tax return and to
remit the tax withheld to the government impliedly includes the authority to file a claim
for refund and to bring an action for recover of such claim. (CIR v. Smart
Communications, Inc., G.R. No. 179045, August 25, 2010)
However, if ever the withholding agent does get the refund, the withholding agent
has the obligation to remit the same to the principal taxpayer. As mere agent of the
taxpayer, he has the duty to return what he recovered; otherwise, he would be unjustly
enriching himself.
The Tax Code imposes certain obligations upon the withholding agent to monitor its compliance
with the duty to withhold. They include:
1. Register – To register within 10 days after acquiring such status with the RDO having
jurisdiction over the place where the business is located
2. Deduct and withhold – To deduct tax from all money payments subject to withholding tax
3. Remit the tax withheld – To remit tax withheld at the time prescribed by law and
regulations
4. File Annual Return – To file the corresponding Annual Information Return at the time
prescribed by law and regulations
5. Issue Withholding Tax Certificates – To furnish Withholding Tax Certificates to recipient
of income payments subject to withholding
6. The taxpayer cannot be compelled to answer for the non-performance by the withholding
agent of its legal duty to withhold unless there is collusion or bad faith. Further, the
taxpayer could not be deemed to have evaded taxes had the withholding agent performed
its duty (Far East Bank and Trust Company v. Court of Appeals, G.R. No. 129130,
December 9, 2006).
The codal provision on withholding tax are mandatory and must be complied with by the
withholding agent (Far East Bank and Trust Company v. Court of Appeals, G.R. No. 129130,
December 9, 2006).
The obligation of the payor employer to deduct and withhold the related withholding tax on
bonuses arises at the time the income was paid or accrued or recorded as an expense in the
payor’s/employer’s books, whichever comes first (ING Bank N.V. v. CIR, G.R. No. 167679, June
22, 2015).
Considering that the taxes withheld by the withholding agent are held in trust for the government
and its availability is an imperious necessity to ensure sufficient cash inflow to the National
Treasury, withholding agents shall file BIR Monthly Remittance Form (BIR Form No. 0619E
and/or 0619F) every tenth (10th) day of the following month when the withholding is made,
regardless of the amount withheld (R.R. No. 11-2018, Sec. 5). Before the passage of the TRAIN
Law, the return for FWT and the return for creditable withholding taxes shall be filed within
ten (10) days after the end of each month (Sec. 2.58 of R.R. No. 2-98).
Withholding of Tax shall not apply to income payment of the following: (Revenue
Regulation No. 02-98, Sec. 2.57.5, as amended by Revenue Regulation No. 11-2018, Sec.
4).)
1. National government and its instrumentalities including provincial, city, or municipal
governments, as well as GOCCs; and
2. Persons enjoying income tax exemptions; and
3. Exempt organizations under Sec. 30 of the NIRX, except income derived from real or
personal property, or from any activity conducted for profit.
4. Persons enjoying exemption from payment of income taxes pursuant to the
provisions of any law, general or special, such as but not limited to the following:
a. Sales of real property by a corporation which is registered with and certified
by the Housing and Land Use Regulatory Board (HLURB) or the Housing and Urban
Development Coordinating Council (HUDCC) as engaged in socialized housing project
where the selling price of the house and lot or only lot does not exceed the socialized
housing price applicable to the area as prescribed and certified by the said
board/council as provided under Republic Act No. 7279 and its implementing
regulations.
b. Corporations which are exempt from the income tax under Sec. 30 of the Tax
Code, as amended, and government-owned or controlled corporations exempt from
income tax under Section 27(A)(C) of the same Code, to wit: the Government Service
Insurance System (GSIS), the Social Security System SSS), the Philippine Health
Insurance Corporation (PHIC); and the Local Water Districts (LWD). However, the
income payments arising from any activity which is conducted for profit or income
derived from real or personal property shall be subject to withholding tax as
prescribed in these regulations.
d. Individuals who earn 250, 000.00 and below from a line income payor upon
compliance with the following requirements:
i. The individual has executed a payee’s sworn declaration of gross
receipts in accordance with the format per attached Annex “B-2”,
ii. The sworn declaration has been submitted to the lone income
payor/withholding agent on or before January 15 of each year or before initial income
payment, whichever is applicable.
In case of failure by the withholding agent to perform his duty to withhold and remit
tax, is the taxpayer absolved of liability?
The liability of the withholding agent is independent from that of the taxpayer. The former cannot
be made liable for the tax due because it is the latter who earned the income subject to withholding
tax. The withholding agent is liable only insofar as he failed to perform his duty to withhold the
tax and remit the same to the government. The liability for the tax, however, remains with the
taxpayer because the gain was realized and received by him. x xx [The taxpayer] remains liable
for the payment of tax as [he] shares the responsibility of making certain that the tax is properly
withheld by the withholding agent, so as to avoid any penalty that may arise from the non-
payment of the withholding tax due. (RCBC vs. CIR, G.R. No. 170257, 7 September 2011)
Income which any creditable tax is required to be withheld at source shall be included in
the return of its recipients (NIRC, as amended by TRAIN Law, Sec. 58(D)).
The excess of the amount of tax withheld over the tax due on his return shall be refunded
to him.
Requisites:
1. The expense is paid or payable by the taxpayer; which is income to the recipient thereof
subject to income tax
2. The income is fixed or determinable at the time of payment
3. The income is one of the income payments listed in the R.R. No. 02-98 that is subject
to withholding tax
4. The payor-withholding agent is a resident of the Philippines; and
5. The income recipient is a resident of the Philippines liable to income tax.
The employer is considered the withholding agent. Every employer making payments of
wages shall deduct from and withhold tax, except for minimum wage earners.
Employer shall be liable if he fails to withhold and remit.
Requisites:
a. Employer-employee relationship; and
b. Payment of compensation or wages for services rendered
Compensation subject to withholding tax
a. Salaries and wages
b. Bonuses
c. Commissions
d. Fringe Benefits of rank and file employees
e. Allowance; and
f. Tips (R.R. No. 02-98, Sec. 2.78.1(A))
An employer shall furnish to each employee in respect of his employment during the
calendar year, on or before January 31 of the succeeding year, or if his employment is
terminated before the close of such calendar year, on the same day of which the last
payment of wages is made, a written statement confirming the wages paid by the
employer to such employee during the calendar and the amount of tax deducted and
withheld in respect of such wages.
He shall also submit to the Commissioner on or before January 31 of the succeeding year,
an annual information return containing a list of employees, the total amount of
compensation income of each employee, the total amount of taxes withheld therefrom
during the year, accompanied by copies of the statement referred to in the preceding
paragraph, and such other information as may be deemed necessary.
ii. Value Added Taxes (VAT) – taxes withheld by National Government Agencies (NGAs)
and instrumentalities, including government-owned and controlled corporations
(GOCCs) and local government units (LGUs), before making any payments to VAT-
registered taxpayers/suppliers/payees on account of their purchases of goods and
services.