WITHHOLDING TAXES CARLO P. DIVEDOR 29 November 2017

LEGAL BASIS 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.”

REVENUE REGULATIONS NO. 02-98 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 SECTION 2.57. Withholding of Tax at 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.

REVENUE REGULATIONS NO. 02-98 SECTION 2.57. Withholding of Tax at 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.

REVENUE REGULATIONS NO. 02-98 SECTION 4.114. Withholding of Creditable Value-Added Tax 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%

REVENUE REGULATIONS NO. 02-98 SECTION 4.114. Withholding of Creditable Value-Added Tax 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% Payments made to government public works contractors — 8.5% Payments for lease or use of property or property rights to non-resident owners — 10%

REVENUE REGULATIONS NO. 02-98 SECTION 4.114. Withholding of Creditable Value-Added Tax 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.

REVENUE REGULATIONS NO. 02-98 SECTION 4.114. Withholding of Creditable 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.

REVENUE REGULATIONS NO. 02-98 SECTION 4.114. Withholding of Creditable Value-Added Tax 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

REVENUE REGULATIONS NO. 02-98 SECTION 4.114. Withholding of Creditable 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.

REVENUE REGULATIONS NO. 02-98 SECTION 4.114. Withholding of Creditable Value-Added Tax Liability of designated officers. — 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.

REVENUE REGULATIONS NO. 02-98 SECTION 4.114. Withholding of Creditable Value-Added Tax Liability of designated officers. — (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.

REVENUE REGULATIONS NO. 02-98 SECTION 4.114. Withholding of Creditable Value-Added Tax Liability of designated officers. — 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.

REVENUE REGULATIONS NO. 02-98 Particulars Goods Services 1. VAT 1% 5% 2% 2. Non VAT 3% BIR Forms 2307 2306

REVENUE REGULATIONS NO. 02-98 Examples: 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

REVENUE REGULATIONS NO. 02-98 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 Expanded Tax – 16,000.00 x 2% = Php 320.00 Total Tax – 480.00 + 320.00 = Php 800.00

REVENUE REGULATIONS NO. 02-98 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 – Php 20,000.00 Sales Price net of taxes – 20,000.00/1.12 = Php 17,857.14 Expanded VAT = Php 357.14

REVENUE REGULATIONS NO. 02-98 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 Sales Price – Php 18,936.45 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