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Pubic Hearing on Amending Pertinent Provisions of Revenue Regulations No. 2-98

Date : 12/1/11

Time: 1:30 pm – 5:00pm

Venue: National Training Center Auditorium BIR National Office Compound Bir Road, Diliman Quezon City

REVENUE REGULATIONS NO.

SUBJECT : Amending Pertinent Provisions of Revenue Regulations No. 2-98, as

Amended, Increasing the Withholding Tax Rates on Certain Income Payments and Amending the Manner of Submission of the Alphabetical List of Employees/Payees which are Required to be Attached in the Annual Information Returns (BIR Form Nos. 1604-CF and 1604-E).

TO : All Withholding Agents, Internal Revenue Officers, Employees and

Others Concerned

Pursuant to the provisions of Section 244, in relation to Sections 57(B), 58(C) and 83 of the National Internal Revenue Code of 1997, as amended, these Regulations are hereby promulgated to increase the withholding tax rates on certain income payments subject to expanded withholding tax and to amend the manner of submission of alphabetical lists of employees/payees as attached in the Annual Information Returns (BIR Form Nos. 1604-CF/1604-E).

SECTION 1. INCOME PAYMENTS SUBJECT TO CREDITABLE

WITHHOLDING TAX.- Section 2.57.2 of Revenue Regulations No. 2-98, as amended , is hereby further amended to read as follows:

“Sec. 2.57.2 - Income payments subject to creditable withholding tax and rates prescribed thereon. - Except as herein otherwise provided, there shall be withheld a creditable income tax at the rates herein specified for each class of payee from the following items of income payments to persons residing in the Philippines:

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(E) Income payments to certain contractors. - On gross payments to the following contactors, whether individual or corporate. Four percent (4%);

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(G) Income payments to certain brokers and agents. On gross commissions or service fees of customs, insurance, stock, real estate, immigration and commercial brokers and fees of agents of professional entertainers – Fifteen percent (15%) if the gross income for the current year exceeds P720,000.00; and Ten percent (10%), if otherwise;

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(L) Certain Income payments made by credit card companies. On the gross amounts paid by any credit card company in the Philippines to any business entity, whether a natural or juridical person, representing sales of goods/services made by the aforesaid business entity to cardholders. – Two percent (2%);

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(M) Income payments made by the top twenty thousand (20,000)
private corporations to their local/resident supplier of goods and
local/resident supplier of services other than those covered by other rates of
withholding tax.-
Income payments made by any of the top 20,000 private
corporations, as determined by the Commissioner, to their local/resident supplier
of goods and local/resident suppliers of services, including non-resident aliens
engaged in trade or business in the Philippines-
Supplier of goods
- Two percent (2%)
Supplier of services -
Four percent (4%)

Provided, however, that for purchases involving agricultural products in their original state, the tax required to be withheld under this sub-section shall only apply to purchases in excess of the cumulative amount of Three Hundred Thousand Pesos (P300,000) within the same year. For this purpose, agricultural products in their original state as used in these regulations shall only include corn, coconut, copra, palay, rice, cassava, sugar cane, coffee, fruits, vegetables, marine food products, poultry and livestock

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Illustrative example for agricultural products:

Question: How do we compute the 2% expanded withholding tax (EWT) on purchases of palay, an agricultural product from Mr. Ben Soriano, a small supplier/planter and from whom the first transaction occurred in 2009, based on the following information:

Number of

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Transactions

Year

Purchase Amount

One

2009

P290,000.00

Two

2010

320,000.00

Three

2011

400,000.00

Two

2012

90,000.00

Answer:

1. In 2009, the transaction is exempt from the 2% EWT since the amount is less than P300,000.00.

2. In 2010, only the amount in excess of P300,000.00 or P20,000.00 shall be subject to the 2% EWT. Thus, the 2% EWT shall be P400.00 (P20,000.00 x 2%).

3. In 2011, only the amount of P100,000.00 shall be subject to the 2% EWT since the amount is in excess of the P300,000.00 threshold. Therefore, the amount of P2,000.00 shall be withheld (P100,000.00 x 2%).

4. In 2012, the transaction is exempt from the 2% EWT since the amount involved is only P90,000.00 which is below the P300,000.00 threshold.

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(N) Income payments made by the government to its local/resident supplier of goods and local/resident supplier of services other than those covered by other rates of withholding tax. - Income payments, except any casual or single purchase of Ten Thousand Pesos (P10,000.00) and below, which are made by all government offices and instrumentalities, national or local, including barangays and other attached agencies or bodies, and government-owned or controlled corporations on their purchases of goods and purchases of services from local/resident suppliers, other than those covered by other rates of withholding tax

Supplier of goods - Two percent (2%)

Supplier of services - Four percent (4%)

Provided, however, that for purchases involving agricultural products in their original state the tax required to be withheld under this sub-section shall only apply to purchases in excess of the cumulative amount of Three Hundred Thousand Pesos (P300,000) within the same year. For this purpose, agricultural products in their original state as used in these regulations shall only include corn, coconut, copra, palay, rice, cassava, sugar cane, coffee, fruits, vegetables, marine food products, poultry and livestock.

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A government-owned and controlled corporation shall withhold the tax in its capacity as a government-owned and controlled corporation rather than as a corporation stated in Subsection (M) of RR 2-98, as amended.


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Illustrative example for agricultural products:


Question:


How do we compute the 2% expanded withholding tax (EWT) on purchases of palay, an agricultural product from Mr. Ben Soriano, a small supplier/planter and from whom the first transaction occurred in 2009, based on the following information:

Number of


Transactions

Year

Purchase Amount

One

2009

P290,000.00

Two

2010

320,000.00

Three

2011

400,000.00

Two

2012

90,000.00

Answer:

1. In 2009, the transaction is exempt from the 2% EWT since the amount is less than P300,000.00.

2. In 2010, only the amount in excess of P300,000.00 or P20,000.00 shall be subject to the 2% EWT. Thus, the 2% EWT shall be P400.00 (P20,000.00 x 2%).

3. In 2011, only the amount of P100,000.00 shall be subject to the 2% EWT since the amount is in excess of the P300,000.00 threshold. Therefore, the amount of P2,000.00 shall be withheld (P100,000.00 x 2%).

4. In 2012, the transaction is exempt from the 2% EWT since the amount involved is only P90,000.00 which is below the P300,000.00 threshold.


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(O) Commission of independent and/or exclusive sales representatives, and marketing agents of companies. On gross commissions, rebates, discounts and other similar considerations paid/granted to independent and/or exclusive sales representatives and marketing agents and sub-agents of companies, including multi-level marketing companies, on their sale of goods or services by way of direct selling or similar arrangements where there is no transfer of title over the goods from the seller to the agent/sales representative. -

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Fifteen percent (15%) if the gross income for the current year exceeds P720,000.00; and Ten percent (10%), if otherwise;

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(Q) Payments made by pre-need companies to funeral parlors. On

gross payments made by pre-need companies to funeral parlors for funeral services rendered. - Four percent (4%);

(R) Payments made to embalmers. On gross payments made to

embalmers for embalming services rendered to funeral companies. Four percent (4%);

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(W) Income payments made by the top five thousand (5,000)

Individual Taxpayers to their local/resident suppliers of goods and local/resident supplier of services other than those covered by other rates of withholding tax. Income payments made by the Top 5,000 Individual Taxpayers engaged in trade or business in the Philippines, as determined by the Commissioner of Internal revenue, to their local/resident supplier s of goods and local/resident suppliers of services other than those covered by other rates of withholding tax, including non-resident aliens engaged in trade or business in the Philippines –

Supplier of goods - Two percent (2%)

Supplier of services - Four percent (4%)

Provided, however, that for purchases involving agricultural products in their original state, the tax required to be withheld under this sub-section shall only apply to purchases in excess of the cumulative amount of Three Hundred Thousand Pesos (P300,000) within the same year. For this purpose, agricultural products in their original state as used in these regulations shall only include corn, coconut, copra, palay, rice, cassava, sugar cane, coffee, fruits, vegetables, marine food products, poultry and livestock.

xxx xxx xxx

Illustrative example for agricultural products:

Question: How do we compute the 2% expanded withholding tax (EWT) on purchases of palay, an agricultural product from Mr. Ben Soriano, a small supplier/planter and from whom the first transaction occurred in 2009, based on the following information:

Number of
Transactions
Year Purchase Amount

5


One 2009 P290,000.00

Two 2010 320,000.00

Three 2011 400,000.00

Two 2012 90,000.00

Answer:

1. In 2009, the transaction is exempt from the 2% EWT since the amount is less than P300,000.00.

2. In 2010, only the amount in excess of P300,000.00 or P20,000.00 shall be subject to the 2% EWT. Thus, the 2% EWT shall be P400.00 (P20,000.00 x 2%).

3. In 2011, only the amount of P100,000.00 shall be subject to the 2% EWT since the amount is in excess of the P300,000.00 threshold. Therefore, the amount of P2,000.00 shall be withheld (P100,000.00 x 2%).

4. In 2012, the transaction is exempt from the 2% EWT since the amount involved is only P90,000.00 which is below the P300,000.00 threshold.

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SECTION 2. Section 2.58 of RR No. 2-98, as amended, is hereby further amended to read as follows:

Section 2.58. Returns and Payments of Taxes Withheld At Source.

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D. Annual information return for income tax withheld at source.- The payor is required to file an Annual Information Return of Creditable Income Taxes Withheld (Expanded)/Income Payments Exempt from Withholding Tax (BIR Form 1604-E) with List of Payees from whom creditable (expanded) withholding tax was withheld (showing among others the name, address and TIN of the payee, the nature of income payments, gross amount and amount of tax withheld from each payee and such other information as may be required by the Commissioner), on or before March 1 of the following year. The BIR Form 1604-E, together with the list of payees in excel format or using taxpayer‟s own extract program/data entry module developed by the Bureau, shall be submitted in any of the following manners:

1. Thru Electronic Filing and Payment System (eFPS) – available to taxpayers classified as Large Taxpayers and those enrolled in and mandated to use the eFPS;

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2. Thru the e-Submission facility of the Bureau, using Comma Separated Value

(CSV) data file format;

3. Thru Compact Disc-Recordable (CD-R)- This shall be submitted to the Revenue District Office where the withholding agent is registered. Taxpayers under the Large Taxpayers Service who opted to submit the same thru this medium shall submit the aforesaid annual information return, together with the required attachments, to the Large Taxpayers Assistance Division (LTAD) or Excise Taxpayers Assistance Division or Large Taxpayers District Offices (LTDOs), whichever is applicable.

For those who shall choose to use the excel format or their own extract program, such taxpayers shall use a validation module developed by the BIR, which can be downloaded from the BIR website. Taxpayers enrolled in eFPS and those who opted to submit the alphalists thru e-submission facility must print the confirmation receipt generated by the system which shall serve as proof of their submission. Only CD/email: esubmission@bir.gov.ph, readable and virus free files upon submission shall be considered as duly filed “List of Payees” by the withholding agent. Violation hereof, shall be a ground for the mandatory audit of violator‟s income tax liabilities (including withholding tax). CDs submitted containing the alphabetical list of payees must be uploaded through „file transfer protocol‟ (ftp) to the Integrated Tax System (ITS) by the concerned offices within fifteen (15) days from receipt thereof. Those submitted thru eFPS and e-Submission facilities of the Bureau shall be uploaded to the ITS by the concerned Revenue Data Centers (RDCs) immediately after confirming with the concerned taxpayers the receipt thereof.

In any case, the withholding agents are required to save the same in a secondary storage as back up for a period of three (3) years from submission of the diskette, as aforementioned, for future reference.

The concerned Office under the Information System Group (ISG) must generate the list of withholding agents who failed to comply with the submission of the alphabetical lists of payees subjected to withholding tax, thirty (30) days from the due date prescribed for the submission thereof. The list of non-compliant withholding agents shall be given to the Offices where they are registered for appropriate action.

SECTION 3. Section 2.83.2 of RR No. 2-98, as amended, is hereby further amended to read as follows:

Section 2.83.2. Annual Information Return of Income Taxes Withheld on Compensation and Final Withholding Taxes (BIR Form No. 1604-CF).

Every employer or other persons required to deduct and withhold the tax is required to file an Annual Information Return of Income Taxes Withheld on Compensation and Final Withholding Taxes (BIR Form No. 1604-CF) and the

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alphabetical list of employees/payees in excel format or using taxpayer's own

extract program/data entry module developed by the Bureau, to be submitted on or before January 31 following the close of the calendar year, in any of the following manners:

1. Thru Electronic Filing and Payment System (eFPS) – available to taxpayers classified as Large Taxpayers and those enrolled in and mandated to use the eFPS;

2. Thru the e-Submission facility of the Bureau, using Comma Separated Value (CSV) data file format;

3. Thru Compact Disc-Recordable (CD-R) – This shall be submitted with the Revenue District Offices where the employer is registered as withholding agent. Taxpayers under the Large Taxpayers Service shall submit the aforesaid annual information return, together with the required attachments, to the Large Taxpayers Assistance Division (LTAD) or Excise Taxpayers Assistance Division or Large Taxpayers District Offices, whichever is applicable.

For those who shall choose to use the excel format or their own extract program, such taxpayers shall use a validation module developed by the BIR, which can be downloaded from the BIR website. Taxpayers enrolled in eFPS and those who opted to submit the alphalists thru e-submission facility must print the confirmation receipt generated by the system which shall serve as proof of their submission. Only CD/email: esubmission@bir.gov.ph, readable and virus free files upon submission shall be considered as duly filed “List of Payees” by the withholding agent. Violation hereof, shall be a ground for the mandatory audit of violator‟s income tax liabilities (including withholding tax). CDs submitted containing the alphabetical list of payees must be uploaded through „file transfer protocol‟ (ftp) to the Integrated Tax System (ITS) by the concerned offices within fifteen (15) days from receipt thereof. Those submitted thru eFPS and e-Submission facilities of the Bureau shall be uploaded to the ITS by the concerned Revenue Data Centers (RDCs) immediately after confirming with the concerned taxpayers the receipt thereof.

In any case, the withholding agents are required to save the same in a secondary storage as back up for a period of three (3) years from submission of the diskette, as aforementioned, for future reference.

The concerned Office under the Information System Group (ISG) must generate the list of withholding agents who failed to comply with the submission of the alphabetical lists of payees subjected to withholding tax, thirty (30) days from the due date prescribed for the submission thereof. The list of non-compliant withholding agents shall be given to the Offices where they are registered for appropriate action.

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SECTION 4. Section 2.83.3 of RR No. 2-98, as amended, is hereby amended to read as follows:

“Section 2.83.3. Information that must be provided in the Annual Information Return of Income Tax Withheld on Compensation and in the Alphabetical List of Employees and Payees Subjected to Final Withholding Tax. -

A. The Annual Information Return of Income Tax Withheld on Compensation
must show among others, the following:

(1) Withholding Agent's registered name:

(2) Address; and

(3) Taxpayer's Identification Number (TIN).

B. The alphabetical list of employees must show the following:

(1) Name and TIN of the employees;

(2) Employment Status of the employee, following codes provided:

a. MWE- Minimum Wage Earners;

b. WME - With Multiple Employment;

c. WPE - With Previous Employer;

d. TBD - Terminated Before December 31; and

e. RNOE - Regular & No Other Employment.

(3) Gross compensation paid by present and previous employers for the
calendar year, showing taxable and non-taxable items:

a. Taxable items-

> 13th month pay/other taxable employees benefits in excess of
exemption threshold

b. Non-Taxable items -

> Non-taxable 13th month pay and other benefits within the exemption threshold

> Statutory Minimum Wage (SMW);

> Non-Taxable Holiday Pay;

> Non-Taxable Overtime Pay;

> Non-taxable night-shift differential;

> Non-taxable Hazard Pay;

> Non-taxable employees contributions to PHIC, GSIS/SSS, HDMF and others;

(4) Amount of Exemptions;

(5) Amount of premium payments on health and/or hospitalization insurance not exceeding P2,400.00, if any;

(6) Tax required to be withheld/Tax Due [computed in accordance with Sec. 24 (A) of the Code];

(7) Tax withheld by all present and previous employers for the calendar year; and

(8) Adjustment if any; and

(9) Information as to whether qualified to avail the substituted filing of return.

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C. The alphabetical list of payees subjected to final withholding tax shall be

prepared by indicating among others, the following:

(1) Name and Tin of Payees;

(2) Address of Payees;

(3) Status as to Residence/Nationality;

(4) Nature of Income payment and its ATC;

(5) Amount of Income Payment;

(6) Rate of Tax; and

(7) Amount of Tax Withheld D. The Alphabetical List of Employees Other Rank and File who were Given

Fringe Benefits Subject to Fringe benefits Tax (FBT) shall be prepared by indicating the following:

(1) Name and TIN of Payee;

(2) Amount of Fringe Benefit and its ATC;

(3) Grossed-Up Monetary Value; and

(4) Amount of Tax Withheld.

The withholding agent shall be responsible to all the information reflected in the alphalist of employees/payees submitted. Every erroneous information reflected in the submitted alphabetical list of employees/payees shall be a ground for the imposition of penalty pursuant to Section 255 of the Tax Code.

SECTION 5. Section 2.83.4 of RR No. 2-98, as amended is hereby amended to read as follows:

“Section 2.83.4. Substituted Filing of Income Tax Returns by Employees Receiving Purely Compensation Income.- Individual taxpayers receiving purely compensation income, regardless of amount, from only one employer in the Philippines for the calendar year, the income tax of which has been withheld correctly by the said employer (tax due equals tax withheld) shall not be required to file BIR Form No. 1700. In lieu of BIR Form No. 1700, the Annual Information Return of Income Taxes Withheld on Compensation and Final Withholding Taxes (BIR Form No. 1604-CF) filed by their respective employers in any of the manners prescribed under Section 2.83.2 shall be tantamount to the substituted filing of income tax returns by said employees.

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SECTION 6. Repealing Clause.- The provisions of any revenue regulations, revenue memorandum orders, circulars or any other issuance inconsistent herewith are hereby repealed, amended or modified accordingly.

SECTION 7. Effectivity.- These regulations shall take effect fifteen (15) days after publication in any newspaper of general circulation.


CESAR V. PURISIMA Secretary of Finance

Recommending Approval:

KIM S. JACINTO-HENARES Commissioner of Internal Revenue

Pubic Hearing on Amending Pertinent Provisions of Revenue Regulations No. 2-98

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