Withholding taxes

WITHHOLDING TAXES
CARLO P. DIVEDOR
19 October 2017

DEPARTMENT OF EDUCATION
• REVENUE REGULATIONS NO. 02-98
Implementing Republic Act No. 8424, "An Act
Amending The National Internal Revenue Code, as
Amended" Relative to the Withholding on Income
Subject to the Expanded Withholding Tax and Final
Withholding Tax, Withholding of Income Tax on
Compensation, Withholding of Creditable Value-
Added Tax and Other Percentage Taxes.”
LEGAL BASIS

• SECTION 2.57. Withholding of Tax at
Source
(A) Final Withholding Tax. — Under the final
withholding tax 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. The liability for
payment of the tax rests primarily on the payor as
a withholding agent. Thus, in case of his failure to
withhold the tax or in case of under withholding,
the deficiency tax shall be collected from the
payor/withholding agent. The payee is not required
to file an income tax return for the particular
income.
REVENUE REGULATIONS NO. 02-98

Source
The finality of the withholding tax is limited
only to the payee's income tax liability on the
particular income. It does not extend to the payee's
other tax liability on said income, such as when the
said income is further subject to a percentage tax.
For example, if a bank receives income subject to
final withholding tax, the same shall be subject to a
percentage tax.

Source
(B) Creditable Withholding Tax. — Under the
creditable withholding tax system, taxes withheld on
certain income payments are intended to equal or at
least approximate the tax due of the payee on said
income. The income recipient is still required to file an
income tax return, as prescribed in Sec. 51 and Sec. 52
of the NIRC, as amended, to report the income and/or
pay the difference between the tax withheld and the tax
due on the income. Taxes withheld on income payments
covered by the expanded withholding tax (referred to in
Sec. 2.57.2 of these regulations) and compensation
income (referred to in Sec. 2.78 also of these
regulations) are creditable in nature.

• SECTION 4.114. Withholding of Creditable
Value-Added Tax
(A) Rates and basis of creditable value-added tax to be
withheld. — The gross payments made by the government
to sellers of goods and services shall be subject to
withholding tax at the rates herein prescribed:
a. In general, payments by the government or any of its
political subdivisions, instrumentalities or agencies
including government-owned or controlled corporations
(GOCCs) on account of its purchase of goods from sellers
and services rendered by contractors who are subject to
the value-added tax — On gross payment for the purchase
of goods - 3%

Value-Added Tax
(A) Rates and basis of creditable value-added tax to be
withheld. — The gross payments made by the government
to sellers of goods and services shall be subject to
withholding tax at the rates herein prescribed:
On gross payment for services rendered - 6%
b. Payments made to government public works
contractors — 8.5%
c. Payments for lease or use of property or property rights
to non-resident owners — 10%

Value-Added Tax
(B) Persons required to deduct and withhold. — All local
government units, represented by the Provincial Treasurer
in provinces, the City Treasurer in cities, the Municipal
Treasurer in municipalities, and Barangay Treasurer in
barangays, Treasurers of GOCCs and the Chief Accountant
or any person holding similar position and performing
similar function in national government offices, as
withholding agents, shall deduct and withhold the
prescribed creditable value-added tax before making any
payment to seller of goods and services.

Value-Added Tax
Where the government as herein defined has regional
offices, branches or units, the withholding and remittance of
the creditable VAT may be done on a decentralized basis as
such, the treasurer or the chief accountant or any person
holding similar function in said regional office, branch or unit
shall deduct and withhold the creditable VAT before making
any payment to the seller of goods and services.

Value-Added Tax
(C) Returns and payment of taxes withheld. — The withholding agents
shall accomplish the Monthly Value- Added Tax Declaration (BIR
Form 2550M) in duplicate and the amount withheld paid upon filing
the return with the authorized agent banks located within the
Revenue District Office (RDO) having jurisdiction over the place
where the government office is located. In places where there are no
authorized agent bank, the return shall be filed directly with the
Revenue District Offices, Collection Offices or the duly authorized
Treasurer of the city or municipality where the government office is
located except in cases where the Commissioner otherwise permits.
The required return shall be filed and payments made within ten (10)
days following the end of the month the withholding was made
except taxes withheld for the 3rd month of the quarter which shall be
remitted through a Quarterly Value-Added Tax Return (BIR Form
2550Q) to be filed not later than the 25th day after the end of the
calendar quarter

Value-Added Tax
(D) Certificate of Value Added Tax Withheld. — Every
withholding agent shall furnish each seller of goods and
services from whom taxes has been deducted and withheld,
the Certificate of Creditable Tax Withheld at Source (BIR Form
2307) to be accomplished in quadruplicate, the first three
copies of which shall be given to the seller/payee not later
than the fifteenth day of the following month. The fourth copy
shall be the file copy of the withholding agent.

Value-Added Tax
(E) Liability of designated officers. —
(1) Additions to the tax. — The designated Treasurers, Chief
Accountants and other persons holding similar positions,
who have the duty to withhold and remit the value added
tax in their respective offices shall be personally liable for
the additions to the tax prescribed in Sec. 247 of the
Code.

Value-Added Tax
(2) Punishable acts or omissions. — Every officer or
employee of the government of the Republic to the Philippines
or any of its agencies and instrumentalities, its political
subdivisions, as well as government owned or controlled
corporations charged with the duty to deduct and withhold any
internal revenue tax and to remit the same in accordance with
these regulations shall, upon conviction for each act or
omission herein-below specified, be fined in a sum of not less
than five thousand pesos (P5,000.00) but not more than fifty
thousand pesos (P50,000.00) or imprisoned for a term of not
less than six months and one day but not more than two
years, or both.

Value-Added Tax
(2) Punishable acts or omissions. —
(a) Fails or causes the failure to deduct and withhold any
internal revenue tax covered by these regulations;
(b) Fails or causes the failure to remit the taxes deducted
and withheld within the time prescribed therein;
(c) Fails or causes the failure to file the return or issue
certificate required.

Particulars Goods Services
1. VAT 1% 5% 2% 5%
2. Non VAT 1% 3% 2% 3%
BIR Forms 2307 2306 2307 2306

Examples:
1. Mr. Gilbert Bautista, Principal of Bengue National High School, bought a
printer, a Brother Model T700 worth Php 8,000 pesos from Octagon Computer
Store, a VAT registered company.
Question:
How much should the principal pay the Octagon Computer Store and
what BIR forms should he give the store for the creditable withholding tax?
Answer:
Sales price – Php 8,000.00/1.12 = Php 7,142.86 =>SP not including tax
Final VAT – 7,142.86 x 5% = Php 357.14
Expanded VAT – 7,142.86 x 1% = Php 71.43
Selling Price 8,000.00
Taxes Withheld 428.57
Net Amount 7,571.43

Examples:
2. The Lamian Elementary School have an approved Activity Request in the
amount of Php 75,000 for their celebration of the World Teachers Day. The school
head transacted catering services from Balong Catering Services, a Non-Vat
registered business establishment for the food worth Php 16,000.00.
Question:
How much is the amount of taxes that would be deducted on the
payment of catering services?
Answer
Sales Price – Php 16,000.00
Percentage Tax – 16,000.00 x 3% = Php 480.00
Final Tax – 16,000.00 x 2% = Php 320.00
Total Tax – 480.00 + 320.00 = Php 800.00

Examples:
3. Lake Lahit Elementary School conducted a Re-Echo Training on Teaching
Modalities in English Comprehension with its 25 newly hired teachers and the
winning bidder was Fred Anns Catering Services, a VAT registered establishment
which agreed to be the venue of the training. The total catering cost was Php
20,000.00.
Question:
How much is the amount of Expanded VAT that would be deducted on
the payment of catering services?
Answer
Sales Price net of taxes – 20,000.00/1.12 = Php 17,857.14
Expanded VAT = Php 357.14

Examples:
4. Ms. Techie, the TIC of Colong-banga Elementary School, bought office
supplies at Fiel Collins Merchandise, a Non VAT registered establishment worth
Php 18,936.45.
Question:
How much would be the amount of tax should Ms. Techie deduct as
taxes and what are the BIR forms that would be used in the payment of the office
supplies?
Answer
Percentage Tax – 18,936.45 x 3% = Php 568.09
Expanded VAT – 18,936.45 x 1% = Php 189.36
Total Tax = Php 757.45
BIR Forms to be used
BIR Form 2306 = Php 568.09
BIR Form 2307 = Php 189.36

THANK YOU

Withholding taxes

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