Who are Required to Withhold Taxes? (RMC 27-2022)
Are you one of the top withholding tax agents?
Are you obliged to withhold taxes every time you make a payment?
Is the tax for your purchases withheld using the correct tax rate?
We understand you may have some questions or concerns about withholding taxes. So, let us make it easier for you.
Here’s what you need to know about withholding taxes:
Withholding tax is a corporate tax obligation collected in advance for certain income payments and remitted to the Bureau of Internal Revenue (BIR) monthly, quarterly, or annually.
It is an effective tool in the tax collections efforts of the bureau. It promotes voluntary compliance, guarantees steady revenue streams, and checks delinquent taxpayers to avoid revenue loss.
For example, during a tax audit, to detect erring taxpayers, the BIR Examiner will compare the purchases or expenses subjected to withholding tax declared by the income payer against the sales or revenue of the income earner.
CLASSIFICATION OF WITHHOLDING TAXES
- Creditable Withholding Tax
- Compensation – tax withheld from income in an employer-employee relationship.
- Expanded – withholding tax on certain income payments and creditable from the payee’s income tax.
- GMP-Value Added Taxes (GVAT) – tax withheld by certain government agencies before paying to VAT-registered taxpayers for their purchases of goods and services.
- Government Money Payments (GMP) -Percentage Taxes – withholding tax by certain government agencies before making payments to Non-VAT registered taxpayers to purchase goods and services.
- Final Withholding Tax – is a withholding tax required on certain income payments, which constitute the final income tax due from the payee, such as winnings or cash dividend payments, etc.
PERSONS REQUIRED TO WITHHOLD INCOME TAXES
Taxpayers engaged in trade or business must deduct and withhold taxes on certain types of income payments.
- Individual taxpayers engaged in business or practice of a profession;
- Non-individuals (corporations, associations, partnerships, cooperatives), whether engaged in business or not;
- Government agencies and their instrumentalities (National Government Agencies (NGAs), Government-owned or Controlled Corporations (GOCCs), Local Government Units including Barangays (LGUs)
TOP WITHHOLDING TAX AGENTS
A Withholding tax agent is any taxpayer who controls the payment, whether for goods or services, subject to withholding tax. He is required to deduct and remit taxes withheld to the National Treasury.
Top withholding tax agents (TWAs) are classified according to their total gross sales or receipts or purchases for the preceding taxable calendar year and the Revenue District Office (RDO) where their business is duly registered as follows:
|Minimum Gross Sales/Receipts or Gross Purchases|
|Groups A and B||PHP 12,000,000.00|
|Groups C, D and E||PHP 5,000,000.00|
INCOME PAYMENT AND TAX RATES
The following tax rates must be observed for income payments made by top withholding agents to their local resident supplier of goods and services other than those covered by other rates of withholding taxes:
|Income Payment||Tax Rate|
|Supplier of Goods||1%|
|Supplier of Services||2%|
EFFECTIVITY OF THE NEW LIST OF TWAs
The updated list of top withholding agents who are required to deduct and remit either the 1% or 2% withholding tax rates is effective April 1, 2022. You can view this list on the BIR website.
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