Professional Documents
Culture Documents
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. 22
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)
24
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
27
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
28
Annualized Withholding Tax
or the Year-end Adjustment
30
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
33
Employers are required to submit the
ANNUAL INFORMATION RETURN OF INCOME
TAXES WITHHELD ON COMPENSATION AND
FINAL WITHHOLDING TAXES (BIR Form No. 1604-
CF) and the ALPHABETICAL LIST OF EMPLOYEES
34
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
employers 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.
35
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)
42
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%
- Exempt transaction - 0%
- Selling price is not over P500,000 - 1.5%
- SP is over P500,000 but not over P2M - 3%
- Selling price is over P2 M - 5%
- Seller is not habitually engaged in REB - 6%
INCOME PAYMENT
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
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 Ers 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)
c. Er purchases car on installment, VB is the acquisition
the ownership of which is placed cost exclusive of
in the name of the Ee interest, divided by 5
years. MV of FB is
the entire value of
the benefit (regardless it is
used by Ee partly for personal
purpose and partly for Ers benefit.
FINAL WITHHOLDING TAX
A. FBT - MOTOR VEHICLE
Fringe Benefit Valuation
3. d. Er shoulders portion of the VB is the amount
amount of the purchase price shouldered by Er. MV
of the vehicle the ownership is the entire value of FB
of which is placed in the (regardless if it is used by Ee partly for
name of the Ee. personal purpose and partly for the benefit
of the 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
treated as taxable fringe benefit.
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)
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
*NOTE: Non-taxable because the 13th month pay and other benefits
does not exceed P30,000.00.
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
Presented by:
JERRY N. BENANING
Withholding Tax Division, BIR
SEC. 2. Definitions
Likewise, if the aggregate amount of gross income earned by the Senior Citizen
during the taxable year does not
exceed the amount of his personal
exemptions (basic and additional), he shall be exempt from
income tax and shall not be required to file an income tax
return.
Hence, he can still be liable for other taxes such
as:
1. The 20% final withholding tax on interest income from
any currency bank deposit
5. Capital gains tax from sales of shares of stock not traded in the stock
exchange (Sec. 24(C), Tax Code); and
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).
Tourist Inn a lodging establishment catering to transients, which does not meet the
minimum requirement of an economy hotel.
Motorist Hotel any structure with several separate units, primarily located along the
highway, with individual or common parking space, at which motorists may obtain
lodging and in some instance, meals.
(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 citizens
personal consumption only.
(g) For Delivery Orders (excluding bulk orders), the 20% discount shall likewise apply
subject to certain conditions; i.e.
senior citizen ID card number must be given while making the order over the telephone;
the senior citizen ID card must also be presented upon delivery to verify the identity of
the senior citizen
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.
Non-profit, stock golf and country clubs which are not open to the
general public, and are private and for exclusive membership only
as duly proven by their official SEC registration papers, are not
mandated to give the 20% senior citizens discount.
3. If qualified, his name shall be recorded by the RDO in the Master List of Tax-Exempt
Senior Citizens for that particular year, which the RDO is mandatorily required to keep.
However, a Senior Citizen who is a compensation income earner deriving from only
one employer an annual taxable income exceeding the poverty level or the amount
determined by the NEDA thru the NSCB on a particular year, but whose income had
been subjected to the withholding tax on compensation, shall, although not exempt
from income tax, be entitled to the substituted filing of income tax return under
Revenue Regulations No. 2-98, as amended.
SEC. 9. Liability for Other Internal Revenue Taxes
A Senior Citizen shall also be subject to the following internal revenue taxes,
among others, imposed under the Tax Code:
VAT or other Percentages Taxes, as the case may be.
If he is self-employed or engaged in business or practice of profession, and his gross annual
sales and/or receipts exceeds P1,500,000 or such amount to which this may be adjusted
pursuant to Sec. 109(1)(V) of the Tax Code, he shall be subject to VAT. Otherwise, he shall be
subject to the 3% percentage tax;
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 donors 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;
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
Reasons Why the Government Gives Discounts to Senior
Citizens:
e-mail: jerry.benaning@bir.gov.ph