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Welcome To The Withholding Tax System
Welcome To The Withholding Tax System
WITHHOLDING TAX
SYSTEM
The withholding tax system
The withholding of tax is a system used to collect
tax in advance. Withholding tax is not an internal
revenue tax. The system is used to equal or at least
approximate or collect in full the tax due from the
payee on certain income payments. The taxes deducted
and withheld by the withholding agent shall be held as
a special trust fund in trust for the government until
paid or remitted by the withholding agent to collection
officers/banks [Section 58(A), Tax Code].
Importance of the withholding tax system
- to VAT-registered payees
Kinds of withholding taxes
1. Creditable withholding tax – Under this kind of withholding tax, taxes
withheld on certain income payments are intended to equal or at least
approximate the tax due of the payee on said income payments. The
income recipient is still required to file income tax return or business
tax return to report the income and/or pay the difference between the
tax withheld and the tax due on the income. Taxes withheld on
transactions subject to expanded withholding tax (EWT),
withholding tax on compensation (WTC) and government Money
Payment to Non-VAT taxpayers (GMP) subject to percentage tax
are creditable in nature.
PURPOSE:
TAX DUE = TAX WITHHELD
WHEN:
• On or before the end of the calendar year but
prior to the payment of compensation for the
last payroll period.
• If terminated, on the day on which the last
payment of compensation is made.
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Annualized Withholding Tax or the
Year-End-Adjustment
Section 79(H), Tax Code, Section 2.79(B)(5)(b), RR 2-98,
as amended by RR 10-2008
Additional Exemption:
P 25,000 for each qualified dependent child
not exceeding four (4)
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Annualized Withholding Tax
(Year-End-Adjustment)
over P10,000 but not over P30,000 P500 + 10% of the excess over P10,000
over P30,000 but not over P70,000 P2,500 + 15% of the excess over P30,000
over P70,000 but not over P140,000 P8,500 + 20% of the excess over P70,000
over P140,000 but not over P250,000 P22,500 + 25% of the excess over P140,000
over P250,000 but not over P500,000 P50,000 + 30% of the excess over P250,000
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Annualized Withholding Tax
(Year-End-Adjustment)
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Year-End Adjustment - Formula
Tax Due: Refer to Annualized Tax Table, Section 24(A), Tax Code Pxxx
Less: Tax Withheld (Jan. to November, from previous & present employer) xxx
Amount to be withheld in December /refunded on Jan. 25 ff year Pxxx
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Annualized Withholding Tax
or the Year-end Adjustment
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Sample Problem 1
Computation:
Total compensation received from January 1 to May 31, 2009 P 125,000.00
Add: Compensation to be received on June 25,000.00
Gross Compensation Jan. – June, 2009 P150,000.00
Less: Personal Exemption 50,000.00
Taxable Compensation P 100,000.00
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Substituted Filing of
Income Tax Return
(BIR Form No. 1700)
A scheme where the employee shall no longer
be required to file ITR and in lieu thereof, the
employer’s filing of the Annual Information
Return and issuance of BIR Form No. 2316
shall be sufficient provided that conditions set
forth in applicable Revenue Regulations and
other issuances on the matter are complied
with by both the employer and employee.
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Individuals Qualified for Substituted Filing and are not
required to file BIR Form No. 1700
(RRs 3-2002, 19-2002, 10-2008, RMC 1-2003)
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Individuals NOT qualified for substituted filing
and MUST file BIR Form no. 1700
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Certificate of Income and Tax Withheld on
Compensation (BIR Form No. 2316)
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Uses of BIR Form No. 2316
B. RATES - 1% to 32%
E. CERTIFICATES -
BIR Form No. 2307 - Certificate of Creditable Tax
Withheld at Source is issued by the WA to payee within 20 days
after close of quarter or upon request/demand. However, for
individual payees, upon request for the 1st calendar quarter.
F. ANNUAL RETURN -
Withholding Agent shall file the Annual Information Return
(BIR Form No. 1604-E) on or before March 1 of the following
year together with the Alphabetical List of payees in hard copy,
in diskette, thru e-submission or other mode of submission.
WITHHOLDING TAX AT SOURCE
C. Rentals of:
1. Real Property (RR 2-98/6-2001) - 5%
2. Personal Property (RR 14-2002/17-2003) -5%
JERRY N. BENANING
WITHHOLDING TAX DIVISION
Bureau of Internal Revenue
Telephone Numbers: 926-93-47
927-09-98
Telefax : 926-93-28
Email: jerry.benaning@bir.gov.ph
FINAL WITHHOLDING TAX
1. Housing
a. Er leases residential property Value of the benefit (VB)
which is the usual place of shall be the amount of
residence of the employee rental paid by the Er (per lease
contract). The Monetary Value
(MV) is 50% of VB.
FINAL WITHHOLDING TAX
A. FBT – Housing
Fringe Benefit Valuation
A. FBT – Housing
Fringe Benefit Valuation
1. d. If Er purchases residential property MV shall be entire value
and transfers ownership in the name of the benefit
of Ee, the VB shall be the Er’s acqui-
sition cost or ZV
3. MOTOR VEHICLE
Fringe Benefit Valuation
3. a. Er purchases vehicle in the name of Ee VB is the cquisition
cost. MV is the entire
value of FB (regardless if it is used by Ee
partly for personal purpose and partly for
the benefit of Er)
FINAL WITHHOLDING TAX
• A. FBT - MOTOR VEHICLE
Fringe Benefit Valuation
3. b. Er provides Ee with cash for VB is the amount of
the purchase of a motor vehicle, cash received
by Ee. the ownership of which is
MV is the entire placed in the name of the value of
the FB (regardless Ee if it is used by Ee partly for personal
purpose and partly for the benefit of Er)
4. HOUSEHOLD EXPENSES
Expenses of the Ee which are borned by the Er for
household personnel (salaries of household help, personal
driver or the Ee, or other similar expenses like payment for
homeowners association dues, garbage dues, etc) shall be
FINAL WITHHOLDING TAX
A. FBT - 5. INTEREST ON LOAN AT
LESS THAN MARKET VALUE
5. a. Er lends money to Er free of interest or at a rate lower than
12%, such interest foregone by the Er or the difference of
the interest assumed by the Ee and the rate of 12% shall
be treated as taxable FB.
b. The benchmark interest rate of 12% shall remain in effect
c. Applies to installment payments or loans with interest rate
lower than 12% starting January 1, 1998.
FINAL WITHHOLDING TAX
A. FBT - 6. MEMBERSHIP FEES, DUES,
AND OTHER EXPENSES
BORNE BY THE ER FOR HIS
EE IN SOCIAL AND
ATHLETIC CLUBS OR OTHER
SIMILAR
ORGANIZATIONS.
A. STATUTORY BASES:
1. For NON-VAT payees - Sec. 5.116, RR
No. 2-98 (GMP)
2. For VAT taxpayers/payees - Sec. 114(C) ,
R.A. 8424, as amended by RA 9337; Sec.
4.114, RR No. 2-98, as amended by RR 16-
2005 (GVAT)
GOVERNMENT MONEY PAYMENT
B. WITHHOLDING AGENT: - The
government or any of its political subdivisions,
instrumentalities, agencies, GOCC, etc. as
represented by their heads of offices, treasurers
and accountants (RMO 8-2003)
C. TIME OF WITHHOLDING - When paid or
payable
D. REMITTANCE - on or before the 10th day
of the following month after withholding was
made using BIR Form No. 1600.
GOVERNMENT MONEY PAYMENT
E. ISSUANCE OF CERTIFICATE –
a. For NON-VAT PAYEES - not later than
10 days after the end of the month using
BIR Form No. 2307. (RR 4-2002)
b. VAT PAYEES - not later than 10 days after
the end of each month using BIR Form No.
2306 (RR 4-2002, RR 16-2005)
GOVERNMENT MONEY PAYMENT
F. DESIGNATION OF GOVERNMENT
OFFICIALS AS WITHHOLDING AGENT:
The heads of office, treasurers and accountants: (RRs 1-
87, 6-96, 10-97, RMOs 14-98, 70-98, 8-2003)
5.116(A)8(B), RR 2-98] 5%
GOVERNMENT MONEY PAYMENT
TRANSACTIONS SUBJECT TO GMP (NV)
B. VAT PAYEES
1. Purchase of Goods & Services 5%
2. Payment for lease or use of
properties or property rights
to non-resident owners 12%
GOVERNMENT MONEY PAYMENT
3. Payment for services rendered to local
insurance companies with respect to
reinsurance premiums payable to non-
resident insurance or reinsurance
companies; - 12% and
COMPUTATION: Using the monthly withholding tax table, the withholding tax due
is computed by referring to Table B, Line 3, Column 5 which shows a tax of P708.33
on P16,250.00 plus 20% of the excess (P20,000.00 less P16,250.00 = P3,750.00).
Taxable compensation P 20,000.00
Less: Compensation Level
(Table B, Line 3, Column 5) 16,250.00 Excess
P 3,750.00
Tax on P16,250.00 P 708.33
Tax on excess (P3,750.00 x 20%) 750.00 Withholding tax
for December, 2009 P 1,458.33
JERRY N. BENANING
Asst. Chief, Withholding Tax Division
RR 7-2010
Presented by:
JERRY N. BENANING
Withholding Tax Division, BIR
SEC. 2. Definitions
D. On medical and dental services, diagnostic and laboratory fees in all private
hospitals, medical facilities, outpatient clinics, and home health care services, in accordance with
the rules and regulations to be issued by the DOH, in coordination with the PhilHealth.
• “Medical services” refers to hospital services, professional services of physicians and other health
care professionals and diagnostic and laboratory tests that are necessary for the diagnosis or
treatment of an illness or injury.
• “Dental services” refers to oral examination, cleaning, permanent and temporary filling extractions
and gum treatments, restoration, replacement or repositioning of teeth, or alteration of the
alveolar or periodontium process of the maxilla and the mandible that are necessary for the
diagnosis or treatment of an illness or injury.
• “Home health care service” refers to health or supportive care provided to the Senior Citizen
patient at home by licensed health care professionals to include but not limited to, physicians,
nurses, midwives, physical therapists and caregivers
e.In actual fare for land transportation travel in
– public utility buses (PUBs),
– public utility jeepneys (PUJs),
– taxis,
– Asian utility vehicles (AUVs),
– shuttle services and
– public railways, including
• Light Rail Transit (LRT),
• Mass Rail Transit (MRT), and
• Philippine National Railways (PNR).
f. On actual transportation fare for domestic air transport
services and sea shipping vessels and the like, based on the
actual fare and advanced booking.
G. On the utilization of services in hotels and similar lodging
establishments, restaurants and recreation centers.
g.1 For hotels and similar lodging establishments, the discount
shall be for room accommodation and other amenities
offered by the establishment, such as, but not limited to,
massage parlor, sauna bath, food, drinks and other services
offered.
G.5. For restaurants, the discount shall be for the sale of
food, drinks, dessert and other consumable items served by
the establishments, including value meals and promotional
meals offered for the consumption of the general public.
G.6. For this purpose, the term "restaurant" shall refer to any
establishment offering to the public, regular and special
meals or menu, fast food, cooked food and short orders.
Such eating places may also serve coffee, beverages and
drinks. Food and goods sold by establishments that are not
restaurants are not covered, therefore not allowed to give the 20%
discount.
G.7 For recreation centers, the discount shall be
for the utilization of services in the form of
fees, charges and rental facilities, such as, but
not limited to, sports facilities and equipment.
H. On admission fees charged by theaters,
cinema houses and concert halls, circuses,
carnivals, and other similar places of culture,
leisure and amusement, where the discount
shall be on the admission fees charged by the
said establishments;
I. On funeral and burial services for the death of
Senior Citizens. The beneficiary or any person
who shall shoulder the funeral and burial
expenses of the deceased Senior Citizen shall
claim the discount, such as:
casket, embalmment, cremation cost and
other related services for the Senior Citizen
upon payment and presentation of his death
certificate;
Special Discount granted to Senior
SEC. 5.
(a) AIR AND SEA TRANSPORTATION PRIVILEGES – Fare for
domestic air, and sea travel, including advanced booking,
shall be subject to the 20% discount and VAT exemption, if
applicable.
(b) PUBLIC LAND TRANSPORTATION PRIVILEGES – Fare in public
railways, including LRT, MRT, and PNR, fares in buses (PUB),
jeepneys (PUJ), taxi and shuttle services (AUV), are likewise
subject to the 20% discount and VAT exemption, if
applicable.
Hotels, Restaurants, Recreational Centers and Places of
Leisure, and Funeral Services
(a) HOTELS AND SIMILAR LODGING ESTABLISHMENTS – The discount shall be for
room accommodation and other amenities offered by the establishment such as but
not limited to hotel-based parlors and barbershops, restaurants, massage parlor, spa,
sauna bath, aromatherapy rooms, workout gyms, swimming pools, jacuzzis, ktv bars,
internet facilities, food, drinks and other services offered.
`The term “hotel” shall include beach and mountain resorts .
(b) RESTAURANTS – The discount shall be for the purchase of food, drinks, dessert, and other
consumable items served by the establishments offered for the consumption of the general
public.
(c) For Dine-in services under paragraphs (a) and (b) of Section 3, and Section 4, paragraph 2 of
Article 7, the privilege must
be personally availed of by the senior
citizen as defined under these Rules, and no proxies or authorization in favor
of another person who is not a senior citizen will be honored.
Hotels, Restaurants, Recreational Centers and Places of
Leisure, and Funeral Services
(d)The phrase “exclusive use and enjoyment” of the senior
citizen shall mean “for the senior citizen’s personal
consumption” only.
– Delivery fee charged separately are not entitled to the discount and is
subject to tax.
Hotels, Restaurants, Recreational Centers and Places of Leisure, and
Funeral Services
(h) For the above-mentioned transactions under paragraphs (f) and (g) of Section 3 of
Article 7, the Most Expensive Meal Combination (MEMC) shall apply
to food purchases by senior citizens.
• Donor's Tax – All donations made by a Senior Citizen during any calendar year, unless
exempt under a specific provision of law, shall be subject to the donor’s tax imposed
under Title III of the Tax Code;
• Estate Tax – In the event of death, the estate of the Senior Citizen may also be subject to
the estate tax following the rules enunciated under Title III of the Tax Code and its
implementing Regulations;
• Excise Tax on certain goods; and
• Documentary Stamp Tax.
SEC. 10. Exemption from VAT of the sale to Senior Citizens.-
• Sales of any goods and services under Sections 4 and 5 of these Regulations
to Senior Citizens shall be exempt from VAT .
• To ensure the full entitlement of the Senior Citizen to the discount prescribed in the
Act, the sellers are precluded from billing any VAT to the Senior Citizen.
2.The annual taxable income of the Senior Citizen does not exceed the poverty
level as may be determined by the NEDA thru the NSCB.
For this purpose, the Senior Citizen shall submit to his employer a sworn
certification that his annual taxable income does not exceed the poverty level.
SEC. 13. Penalties and Other Sanctions
1.For the first violation, a fine of not less than P50,000.00 but
not exceeding P100,000.00 and imprisonment of not less
than 2 years but not more than 6 years; and
JERRY N. BENANING
Withholding Tax Division
Room 207, National Office Bldg., BIR, Diliman, QC
926-9347 / 926-9451
e-mail: jerry.benaning@bir.gov.ph
Enjoy life while you’re still young, don’t wait for
discounts.
UPDATES
11. As of January 24, 2012: There were already 87 Run After Tax Evaders
(RATE) cases filed by BIR with the DOJ.
12. There is a proposed revenue regulations
increasing withholding tax rates on certain
income payments: Public hearing was held on
December 1, 2011 in the National Training of
the BIR attended by an estimated 400 plus
participants of private and public offices.
Notable among the proposals is the increase in
the EWT rates for the purchase of goods from
1% to 2% and services from 2% to 4%.
SALAMAT PO!
JERRY N. BENANING
Withholding Tax Division
Room 207, National Office Bldg., BIR, Diliman, QC
926-9347 / 926-9451
BIR Contact Center: (02)-981-8888
e-mail: jerry.benaning@bir.gov.ph