WITHHOLDING TAXES

PAGADUAN & DONGA

CONCEPT

Withholding tax is a method of collecting

income tax in advance from the taxable
income of the recipient of income. It is a
systematic way of collecting taxes at
source, an indispensable method of
collecting taxes to ensure adequate
revenue for the government.
CONCEPT

The withholding of income tax on

compensation income, on certain
income payments made to resident
taxpayers, and on income payments
made to non-resident taxpayers is very
important for all taxpayers, because the
obligation to withhold and remit the tax is
mandatory and prescribed by law.
 In the operation of the withholding tax
system;

while the payor, a separate

The payee is the entity, acts no more than an
taxpayer, the agent of the government for the
person on whom collection of the tax in order to
the tax is ensure its payment.
imposed

Bank of America v. Commissioner, [234 SCRA 320]

Timing of Withholding
Withholding tax shall be deducted and
withheld by the withholding agent when
the income payment is paid or payable or
accrued or the income payment is
accrued or recorded as an expense or
asset, whichever is EARLIER.
 Withholding Agent (WA)
A separate entity acting no more than an agent
of the government for the collection of tax in
order to ensure its payments.
He is merely a tax collector, NOT a taxpayer. If
a withholding agent was assessed for
deficiency withholding tax under the Code, as
such, it is being held liable in its capacity as a
withholding agent and not its personality as a
taxpayer. CIR v. CA, [G.R. No. 104151 March
10, 1995]
Withholding Agent (WA)
The following persons are constituted as withholding agents:
Juridical persons, whether or not engage in trade or business
Individual, with respect to payments made n connection with his
trade or business
Individual buyers with regard to taxable sale, exchange, or
transfer of real property, although not engaged in trade or
business
Returns and Payments of Taxes Withheld
at Source [Sec. 58(A) of the NIRC]
Taxes deducted and withheld by withholding agents shall be
covered by a return and paid to, except in cases where the
Commissioner otherwise permits, an authorized agent bank,
Revenue District Officer, Collection Agent, or duly
authorized Treasurer of the city or municipality where the
withholding agent has his legal residence or principal place
of business, or where the withholding agent is a
corporation, where the principal office is located.
Returns and Payments of Taxes Withheld
at Source [Sec. 58(A) of the NIRC]
The taxes deducted and withheld by the withholding
agent shall be held as a special fund in trust for the
government until paid to the collecting officers.
Note that the payment of taxes is simultaneous with the
filing of the returns (pay-as-you-file) except in cases of
Large and Non-Large Taxpayers who files through the
Electronic Filing and Payment System (EFPS).
Consequences for Failure to Withhold
i. Liable for surcharge or penalties
ii. Liable upon conviction to a penalty equal to the total
amount of the tax not withheld or not accounted for and
remitted [Sec. 251 of the NIRC]
iii. Any income payment which is otherwise deductible
from the payors gross income will not be allowed it is
shown that the income tax required to be withheld is not
paid to the BIR. [Sec. 2.58.5 of RR 2-98]
 KINDS FINAL WITHHOLDING TAX CREDITABLE WITHHOLDING TAX

Amount of Tax Collected

Full and final payment of the income due from the Intended to equal or at least approximate the tax due
payee on the said income from the said payee on the said income
Who isPrimarily Liable
Liability rests primarily on the withholding agent Liability rests primarily on the taxpayer
Need to File a Return
Payee is not required to file an income tax return for the Income recipient is still required to file an income tax
particular income return and/or pay the difference between the tax
withheld and the tax due on the income.
Coverage
All income subject to final taxes (i.e. passive income, Those income payments covered by EWT [RR 2-98]
gross income of NRA-NETB) Examples:
? Fringe benefit ? Professional fees, talent fees
? Informers reward to persons instrumental to the ? Income payments to partners of GPP
discovery of violations of the NIRC and the discovery
and seizure of smuggled goods