ReSA - THE REVIEW SCHOOL OF ACCOUNTANCY

CPA Review Batch 45  May 2023 CPA Licensure Examination

TAX-1403
TAXATION A. TAMAYO  E. BUEN  G. CAIGA  C. LIM  K. MANUEL

WITHHOLDING TAXES
I - Systems of Withholding Tax
A. Final withholding tax Under this system, the amount of income tax withheld by the withholding agent is
constituted as a full and final payment of the income tax due from the payee on the
said income.
B. Creditable withholding tax Under this system, taxes withheld on certain income payments are intended to equal
or at least approximate the tax due of the payee on said income.

II – Time of Withholding
The obligation of the payor to deduct and withhold the tax under Section 2.57 of Revenue Regulations No. 2-98 arises at the
time an income payment is paid or payable, or the income payment is accrued or recorded as an expense or asset, whichever
is applicable, in the payor’s book, whichever comes first.

The term "payable" refers to the date the obligation becomes due, demandable or legally enforceable.

Where an income is not yet paid or payable but the same has been recorded as an expense or asset, whichever is applicable,
in the payor’s books, the obligation to withhold shall arise in the last month of the return period in which the same is claimed
as an expense or amortized for tax purposes.

All withholding agents shall, regardless of the number of employees and payees, whether the employees/payees are exempt
or not, submit an alphabetical list of employees and list of payees on income payments subject to creditable and final
withholding taxes which are required to be attached as integral part of the Annual Information Returns (BIR Form No.
1604CF/1604E) and Monthly Remittance Returns (BIR Form No. 1601C, etc.).

III – Income payments subject to withholding (see separate handouts for details)
A. Income Payments Subject
to Final Withholding Tax
1. Income Payments to a Citizen or to a Resident Alien Individual
2. Income Payments to Non-resident Aliens Engaged in Trade or Business in the
Philippines
3. Income Derived from All Sources Within the Philippines by a Non-resident Alien
Individual Not Engaged in Trade or Business Within the Philippines
4. Income Payment to a Domestic Corporation
5. Income Payment to a Resident Foreign Corporation
6. Income Derived from All Sources Within the Philippines by Non-Resident Foreign
Corporation
7. Fringe Benefits Granted to the Employee (Except Rank and File Employee).
8. Informer’s Reward to Persons Instrumental in the Discovery of Violations of the
National Internal Revenue Code and the Discovery and Seizure of Smuggled Goods

B. Income Payments Subject to
Creditable Withholding Tax
1. Professional fees, talent fees, etc. for services rendered
2. Rentals
3. Income payments to certain contractors
4. Income distribution to the beneficiaries of estates and trusts
5. Income payments to partners of general professional partnerships
6. Gross selling price or total amount of consideration or its equivalent paid to the
seller/owner for the sale, exchange, or transfer of real property classified as
ordinary asset
7. Additional income payments to government personnel from importers, shipping
and airline companies, or their agents
8. Certain income payments made by credit card companies
9. Income payment made by top withholding agents, either private corporations or
individuals, to their local/resident supplier of goods and local/resident supplier of
services other than those covered by other rates of withholding tax
10. Income Payments made by a government office, national or local, including
barangays, or their attached agencies or bodies, and government-owned or
controlled corporations to its local/resident supplier of goods/services, other than
those covered by other rates of withholding tax
11. Tolling fees paid to refineries
12. Payments made by pre-need companies to funeral parlors
13. Payments made to embalmers
14. Income payments made to suppliers of agricultural products
15. Income payments on purchases of minerals, mineral products and quarry
resources as defined and discussed in Section 151 of the Tax Code
16. MERALCO Payments
17. Interest income on the refund paid either through direct payment or application
against customers’ billings by other electric Distribution Utilities (DUs) in
accordance with the rules embodied in ERC Resolution No. 8, Series of 2008,
dated June 4, 2008, governing the refund of meter deposits

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WITHHOLDING TAXES TAX-1403
18. Income payments made by political parties and candidates of local and national
elections on all their purchase of goods and services related to campaign
expenditures, and income payments made by individuals or juridical persons for
their purchases of goods and services intended to be given as campaign
contributions to political parties and candidates
19. Interest income derived from any other debt instruments not within the coverage
of ‘deposit substitutes’ and Revenue Regulations 14-2012, unless otherwise
provided by law or regulations
20. Income payments to Real Estate Investment Trust (REIT)
21. Income payments on sugar

IV - Income Tax Collected at Source on Compensation Income

A. Requirement of Every employer must withhold from compensation paid an amount computed in accordance
Withholding with these Regulations, whether the employee is a citizen or an alien, except non-resident alien
not engaged in trade or business. Provided, that no withholding of tax shall be required on the
SMW, including holiday pay, overtime pay, night shift differential and hazard pay of MWEs in
the private/public sectors as defined in these Regulations. Provided, further, that an employee
who receives additional compensation such as commissions, honoraria, fringe benefits,
benefits in excess of the allowable statutory amount of ₱90,000.00, taxable allowances and
other taxable income otherthan the SMW, holiday pay, overtime pay, hazard pay, and night shift
differential pay, shall be taxable only on such additional compensation received.
B. Computation of
The procedures prescribed below shall govern the computation of withholding tax on the
Withholding Tax on taxable compensation income of the employees. Provided, however, that taxable fringe
Compensation benefits received by employees other than rank and file, as defined in the Labor Code of the
Income in General
Philippines, as amended, shall be subject to Fringe Benefits Tax pursuant to Section 33 of the
Tax Code, as amended.
1. Use of Withholding Tax Tables
2. Know the Components of Withholding Tax Table
3. Steps to determine the amount of tax to be withheld
Step 1. Determine the total monetary and non-monetary compensation paid to an
employee for the payroll period: monthly, semi-monthly, weekly or daily,
Classify taxable compensation into regular and supplementary compensation. Regular
compensation includes basic salary, fixed allowances for representation, transportation
and other allowances paid to an employee per payroll period. Supplementary
compensation includes payments to an employee in addition to the regular
compensation, such as commission, overtime pay, taxable retirement, taxable bonus, and
other taxable benefits, with or without regard to a payroll period.
Representation and Transportation Allowances (RATA) granted to public officers and
employees under the General Appropriations Act and the Personnel Economic Relief and
Allowance (PERA) which essentially constitute reimbursement for expenses incurred in
the performance of government personnel’s official duties shall not be subject to income
tax and consequently to withholding tax.
Step 2. Use the appropriate table in Annex “D” (for compensation paid from January 1,
2018 to December 31, 2022) or Annex “E” (for compensation paid from January 1, 2023
onwards) and select the applicable payroll period.
Step 3. Determine the compensation range of the employee by taking into account only
the total amount of taxable regular compensation income and apply the applicable tax
rates prescribed thereon.
Step 4. Compute the withholding tax due by adding the tax predetermined in the
compensation range as indicated on the column used and the rate of tax on the excess of
the total compensation over the minimum of the compensation range.
C. Exemption from The following income payments are exempted from the requirement of withholding tax on
withholding tax on compensation but may be subject to income tax depending on the nature/sources of income
compensation earned by the individual recipient.
1. Thirteenth month pay and other benefits (P90,000)
2. GSIS, SSS, Medicare and other contributions
3. Compensation income of Minimum Wage Earners (MWEs) who work in the private sector
and being paid the Statutory Minimum Wage (SMW), as fixed by Regional Tripartite Wage
and Productivity Board (RTWPB)/National Wages and Productivity Commission (NWPC),
applicable to the place where he/she is assigned, as well as the compensation of
employees in the public sector who are paid not more than the SMW applicable to non-
agricultural sector, as fixed by RTWPB/NWPC, applicable to the place where he/she is
assigned.
4. Compensation during the year not exceeding Two hundred fifty thousand pesos
(₱250,000).

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WITHHOLDING TAXES TAX-1403
V - Returns and Payment of Taxes Withheld at Source
A. Manner and Venue of Taxpayers mandated to electronically file and pay shall use the BIR’s electronic system, while
Filing of Withholding those not mandated has the option to either use the said electronic system, or file with the
Tax Returns and Authorized Agent Banks (AABs) under the jurisdiction of the Revenue District Office where they
Payment of Taxes are registered.
Withheld at Source
Withholding agents located at municipalities where there is no AAB, the returns shall be filed
with the Revenue Collection Officer assigned in the said municipality.
B. Time of Filing of The filing of the withholding tax returns (BIR Form No. 1601EQ) for creditable withholding tax
Withholding Tax and Form Nos. 1602 for final tax on interest on bank deposits, 1603 for final tax withheld on
Returns and Payment fringe benefits, and 1601FQ for all other final withholding taxes) and payment of the taxes
of Taxes Withheld at withheld at source shall be made not later than the last day of the month following the close of
Source the quarter during which the withholding was made.
C. Quarter to Follow For purposes of withholding tax remittance, the quarter shall follow the calendar quarter, e.g.,
Calendar Quarter for taxes withheld during the quarter ending March 31, the same shall be remitted by the
withholding agent on or before April 30.
The return filed shall be accompanied by the Quarterly Alphabetical List of Payees (QAP),
reflecting the name of income payees, Taxpayer Identification Number (TIN), the amount of
income paid segregated per month with total for the quarter (all income payments prescribed
as subject to withholding tax under these regulations, whether actually subjected to
withholding tax or not subjected due to exemption), and the total amount of taxes withheld, if
any.

D. Filing of BIR Monthly
Remittance Form
Considering that taxes withheld by the withholding agents 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.

For withholding agents using EFPS facility, the due date is on the fifteenth (15 th) day of the
following month.
Withholding agents with zero remittance are still required to use and file the same form

E. Remittance of Tax In the case of sale of shares of stocks not traded thru a local stock exchange and sale of real
Withheld on Shares of property considered as capital asset, the filing and payment of the tax due thereon shall be
Stock and Real made within thirty (30) days after the sale or disposition using BIR Form No. 1707 and 1706,
Property respectively.
For sale of real property considered as ordinary asset, the remittance of tax withheld shall be
made on or before the tenth (10th) day following the month of transaction using BIR Form No.
1606.

F. Withholding Tax Every payor required to deduct and withhold taxes under this subsection shall furnish each
Statement for Taxes payee, a withholding tax statement, in triplicate, within twenty (20) days from the close of the
Withheld quarter.
The prescribed form (BIR Form No, 2307) for creditable withholding tax and BIR Form 2306
for final withholding tax) shall be used, showing the monthly income payments made, the
quarterly total, and the amount of taxes withheld.

Provided, however, that upon request of the payee, the payor must furnish such statement,
simultaneously with the income payment.

G. Annual Information The withholding agent is required to file with the concerned office of the LTS/RR/RDO where
Return and Annual the withholding agent is registered, the following:
Alphabetical List of a. Annual Information Return of Creditable Taxes Withheld (Expanded)/Income Payments
Payees for income tax Exempt from Withholding Tax (BIR Form No. 1604E) including the corresponding Annual
withheld at source Alphabetical List of Payees - on or before March 1 of the following year in which payments
were made; and
b. Annual Information Return on Final Income Taxes Withheld (BIR Form 1604F) including the
corresponding Annual Alphabetical List of Payees – On or before January 31 of the following
year in which payments were made.”

VI – Return and Payment in Case of Government Employees

If the employer is the Government of the Philippines or any political subdivision, agency or instrumentality thereof, the return
of the amount deducted and withheld upon any wage shall be made by the officer or employee having control of the payment
of such wage, or by any officer or employee duly designated for the purpose.

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WITHHOLDING TAXES TAX-1403
VII – Year-end withholding of tax and requirements
On or before the end of the calendar year but prior to the payment of the compensation for the last payroll period, the
employer shall determine the tax due from each employee on taxable compensation income for the entire taxable year in
accordance with Section 24(A).

The difference between the tax due from the employee for the entire year and the sum of taxes withheld from January to
November shall either be withheld from his salary in December of the current calendar year or refunded to the employee not
later than January 25 of the succeeding year.

VIII - Liability for Tax

A. Employer The employer shall be liable for the withholding and remittance of the correct amount of tax
required to be deducted and withheld under this Chapter. If the employer fails to withhold and
remit the correct amount of tax as required to be withheld under the provision of this Chapter,
such tax shall be collected from the employer together with the penalties or additions to the
tax otherwise applicable in respect to such failure to withhold and remit.
B. Employee Where an employee fails or refuses to file the withholding exemption certificate or wilfully
supplies false or inaccurate information thereunder, the tax otherwise required to be withheld
by the employer shall be collected from him including penalties or additions to the tax from the
due date of remittance until the date of payment. On the other hand, excess taxes withheld
made by the employer due to:
(1) Failure or refusal to file the withholding exemption certificate; or
(2) False and inaccurate information
shall not be refunded to the employee but shall be forfeited in favor of the Government.

IX – Review of Regulations and the Process for the Withholding of Tax

The Department of Finance shall review, at least once every three (3) years, regulations and processes for the withholding of
creditable tax, and direct the Bureau of Internal Revenue to amend the rules and regulations for the same, should it be found
during the review that the existing rules, regulations, an processes for the withholding of creditable tax adversely and
materially impact the taxpayer.

X – Summary of BIR Withholding Tax Form

BIR Form No. Title
BIR Form No. 1601C Monthly Remittance Return of Income
Taxes Withheld on Compensation
BIR Form No. 1601 EQ Quarterly Remittance Return of Creditable
Income Taxes Withheld (Expanded)
BIR Form No. 1601 FQ Quarterly Remittance Return of Final
Income Taxes Withheld
BIR Form No. 1602Q Quarterly Remittance Return of Final Taxes
Withheld on Interest Paid on Deposits and
Deposit Substitute or Trusts/ETC
BIR Form No. 1603Q Quarterly Remittance Return of Final
Income Taxes Withheld on Fringe Benefits
Paid to Employees Other than Rank and File
BIR Form No. 1604 CF Annual Information Return of Income
Taxes and Withheld on Compensation and
Final Withholding Taxes
BIR Form No. 1606 Withholding Tax Remittance Return
Due Date
January to November-10th day after the end
of each month (15th day if under EFPS)
December – Not later than 15th day of the
following year (January 20 if under EFPS)
Not later than the last day of the month
following the close of the quarter during which
the withholding was made.
Not later than the last day of the month
following the close of the quarter during which
the withholding was made.
Not later than the last day of the month
following the close of the quarter during which
the withholding was made.
Not later than the last day of the month
following the close of the quarter during which
the withholding was made.
On or before January 31 of the year following
the calendar year in which the compensation
payment and other income payments subjected
to final withholding taxes were paid or accrued
January to November-10th day after the end
of each month (15th day if under EFPS)
December – Not later than 15th day of the
following year (January 20 if under EFPS)

Large Taxpayers – on or before 25th day of the

following month

END

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