BIR Revenue Regulations No. 2-98
BIR Revenue Regulations No. 2-98
BIR Revenue Regulations No. 2-98
02-98
SUBJECT : 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
TO : All Internal Revenue Officers and Others Concerned
Pursuant to Sec. 244 of the National Internal Revenue Code, as
amended, in relation to Sections 57 to 59, Sections 78 to 83,
Section 114(C) and Sections, 116 to 127 of Republic Act 8424,
these regulations are hereby promulgated which shall govern the
collection at source on income paid on or after January 1, 1998
and prescribing the Revised Withholding Tax Tables on
compensation.
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.
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.
(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
employees.
SECTION 2.78.2. Payroll Period. The term "payroll period"
means the period of services for which a payment of
compensation is ordinarily made to an employee by his employer.
It is immaterial that the compensation is not always paid at
regular intervals.
EXAMPLE: if an employer ordinarily pays the weekly wages of his
employees at the end of the week, but if for some reason a
particular employee receives payment of his salaries for the past
week in the middle of the current week and receives the
remainder at the end of the same week, the payroll period is still
the calendar week; or if, instead, the employee is sent on a three
(3)-week trip by his employer and receives at the end of the trip a
single compensation payment for three (3)-week services, the
payroll period is still the calendar week, and the compensation
payment shall be treated as though it were three (3) separate
weekly compensation payments. LLphil
For the purpose of determining the tax, an employee can have
but one payroll period with respect to the compensation paid by
any one employer. Thus, if an employee is paid a regular
compensation for the weekly payroll and in addition thereto is
paid supplemental compensation (for example taxable bonuses)
determined with respect to a different period, the payroll period is
the weekly payroll period.
SECTION 2.78.3. Employee. The term "employee" is an
individual performing services under an employer-employee
relationship. The term covers all employees, including officers and
employees, whether elected or appointed, of the Government of
the Philippines, or any political subdivision thereof or any agency
or instrumentality.
In general, the relationship of the employer and employee exists
when the person for whom services were performed has the right
to control and direct the individual who performs the services, not
only as to the result to be accomplished by the work but also as
compensation is an "employee".
(A) Person for whom the services are or were performed does not
have control. The term "employer" also refers to the person
having control of the payment of the compensation in cases
where the services are or were performed for a person who does
not exercise such control. For example, where compensation, such
as certain types of pensions or retirement pay, are paid by a trust
and the person for whom the services were performed has no
control over the payment of such compensation, the trust is
deemed to be the "employer".
(B) Person paying compensation on behalf of a nonresident.
The term "employer" also means any person paying
compensation on behalf of a non-resident alien individual, foreign
partnership, or foreign corporation, who is not engaged in trade or
business within the Philippines.
It is the responsibility of the employer to withhold, pay, or refund
the tax and furnish the statements required under these
Regulations. The term "employer" as defined in (A) and (B) above
is intended to determine who is the withholding agent.
As a matter of business administration, certain mechanical details
of the withholding process may be handled by representatives of
the employer. Thus, in the case of a corporate employer with
branch offices, the branch manager or other representative may
actually, as a matter of internal administration, withhold the tax
or prepare the statements required under the law. Nevertheless,
the legal responsibility for withholding, paying and returning the
tax and furnishing such statements rests with the corporate
employer.
An employer may be an individual, a corporation, a partnership, a
trust, an estate, a joint-stock company, an association, or a
syndicate, group, pool, joint venture, or other unincorporated
organization, group or entity. A trust or estate, rather than the
fiduciary acting for or on behalf of the trust or estate, is generally
the employer.
taxable year.
(B) Computation of Withholding Tax on Compensation Income in
General. The procedures provided herein below shall govern
the computation of withholding tax on the taxable compensation
income of the employees. Provided, however, that taxable fringe
benefits received by employees other than the rank and file, as
defined in the Labor Code of the Philippines, as amended, shall be
subject to a Fringe Benefits Tax, instead of the rates prescribed in
the Withholding Tax Tables pursuant to Sec. 24(A) of the Code, as
amended (refer to Sec. 2.79.D of these Regulations).
(1) Use of Withholding Tax Tables. In general, every employer
making payment of compensation shall deduct and withhold from
such compensation a tax determined in accordance with the
prescribed new withholding tax tables effective January 1, 1998
(Annex A) of these Regulations.
There are four (4) withholding tables prescribed in these
regulations, as follows:
(a) Monthly Tax Table to be used by employers using the
monthly payroll period;
(b) Semi-Monthly Tax Table to be used by employers using the
semi-monthly payroll period;
(c) Weekly Tax Table to be used by employers using the weekly
payroll period;
(d) Daily Tax Table to be used by employers using the daily
payroll period.
If the compensation is paid other than daily, weekly, semimonthly or monthly, the tax to be withheld shall be computed as
follows:
(a) Annually use the annualized computation referred to in Sec.
2.79 (B)(5)(b) of these Regulations;
(b) Quarterly and semi-annually divide the compensation by
three (3) or six (6), respectively, to determine the average
monthly compensation. Use the monthly withholding tax table to
compute the tax, and the tax so computed shall be multiplied by
P 1,833.00
Excess P 2,417.00
Excess P 333.00
Excess P 300.00
Excess P 50.00
Excess P 8,500.00
computed in Step No. (4) over the total amount of tax already
deducted and withheld from the beginning payroll period to the
last payroll period, including that withheld by the previous
employer/s within the calendar year, if any. The excess, as
computed, shall be deducted and withheld from the compensation
to be paid for the last payroll period of the current calendar year.
The cumulative average method, once applicable to a particular
employee at any time during the calendar year, shall be the same
method to be consistently used for the remaining payroll period/s
of the same calendar year.
EXAMPLE VII: (Regular monthly compensation is exempt from
withholding but supplementary compensation is paid during the
calendar year) Mr. G, married with three (3) qualified
dependent children whose spouse is not employed received the
following compensation:
Month Regular Supplementary Total
Compensation Compensation Compensation
Jan. P4,500.00 P1,750.00 P6,250.00
Feb. 4,500.00 1,750.00 6,250.00
Mar. 4,400.00 1,500.00 5,500.00
COMPUTATION:
1. For Jan. - P6,250.00 + 0 = P 6,250.00
For Feb. - P6,250.00 + 6,250.00 = P12,500.00
For Mar. - P6,250 + 6,250 + 5,500 = P18,000.00
2. For Jan. - P6,250/1 = P 6,250.00
For Feb. - P12,500/2 = P 6,250.00
For Mar. - P18,000/3 = P 6,000.00
3. For January
Tax on P5,500.00 (Line C.3, Col. 3) P 41.67
Tax on excess (P750.00 x 10%) 75.00
For February
For March
Tax on P5,500 (line C.3, col. 3) P 41.67
Tax on excess (P500.00 x 15%) 50.00
3. For January
Tax on P5,167.00 (line A4, col. 4) P 208.33
Tax on excess (P833.00 x 15%) P 124.95
For February
Tax on P5,167.00 (line A4, col. 4) P 208.33
Tax on excess (P1,083.00 x 15%) P 162.45
For March
Tax on P5,167.00 (line A 4 col. 4) P 208.33
Tax on excess (P1,666.33 x 15%) P 249.95
Step 4
For July P568.99 X 7 = P3,982.93
For August P633.28 X 8 = P5,066.24
For September P683.28 X 9 = P6,149.52
For October P728.33 X 10 = P7,283.30
For November P771.97 X 11 = P8,491.67
Step 5
For July P3,982.93 - 2,899.68 = P1,083.26
For August P5,066.24 - 3,982.93 = P1,083.31
For Sept. P6,149.52 - 5,066.24 = P1,083.28
computed in Step No. (2) the amount of the total personal and
additional exemptions of the employee.
Step 4. Deduct the amount of premium payments on Health
and/or Hospitalization Insurance of employees who have
presented evidence that they have paid during the taxable year
premium payments (the deductible amount shall not exceed
P2,400 or P200 per month whichever is lower) and that their
family's total gross income does not exceed P250,000 for the
calendar year. For purposes of substantiating the claim of
insurance expense, the policy contract shall be presented to the
employer together with the original official receipt of the premium
payment, in addition to the documents which will be prescribed
by the BIR in a separate regulation to determine the aggregate of
his family income.
Total family income includes primary income and other income
from sources received by all members of the nuclear family, i.e.
father, mother, unmarried children living together as one
household, or a single parent with children. A single person living
alone is considered as a nuclear family.
The spouse claiming the additional exemptions for the qualified
dependent children shall be the same spouse to claim the
deductions for premium payments.
Step 5. Compute the amount of tax on the difference arrived at in
Step 4, in accordance with the schedule provided in Sec. 24 (A) of
the Code, as follows:
Over But Not Amount Rate Of Excess
Over Over
not over 10,000 5%
10,000 30,000 500+10% 10,000
30,000 70,000 2,500+15% 30,000
70,000 140,000 8,500+20% 70,000
140,000 250,000 22,500+25% 140,000
250,000 500,000 50,000+30% 250,000
500,000 over 125,000+34% 500,000
(33% in 1999)
(32% in 2000 and thereafter)
Step 6. Determine the deficiency or excess, if any, of the tax
computed in Step 5 over the cumulative tax already deducted and
withheld since the beginning of the current calendar year. The
deficiency tax (when the amount of tax computed in Step 5 is
greater than the amount of cumulative tax already deducted and
withheld or when no tax has been withheld from the beginning of
the calendar year) shall be deducted from the last payment of
compensation for the calendar year. If the deficiency tax is more
than the amount of last compensation to be paid to an employee,
the employer shall be liable to pay the amount of tax which
cannot be collected from the employee. The obligation of the
employee to the employer arising from the payment by the latter
of the amount of tax which cannot be collected from the
compensation of the employee is a matter of settlement between
the employee and employer.
The excess tax (when the amount of cumulative tax already
deducted and withheld is greater than the tax computed in Step
5) shall be credited or refunded to the employee not later than
January 25 of the following year. However, in case of termination
of employment before December, the refund shall be given to the
employee at the payment of the last compensation during the
year. In return, the employer is entitled to deduct the amount
refunded from the remittable amount of taxes withheld from
compensation income in the current month in which the refund
was made, and in the succeeding months thereafter until the
amount refunded by the employer is fully repaid.
EXAMPLE X: (Use of annualized computation when employeremployee relationship was terminated before December) Mr. X,
head of the family with a qualified dependent brother receives
P8,000 as monthly regular compensation starting January 1, 1998.
On June 1, 1998, he filed his resignation effective June 30, 1998.
The tax withheld from January to May was P3,624.65.
Received
Compensation for the year Non-Taxable Taxable
Basic Salary P 78,000 P78,000.00
13th month pay 6,500 P6,500
Other benefits 6,000 6,000
Totals P90,500 P12,500 P 78,000.00
Less: Personal and additional exemptions 48,000.00
(H) Non-deductibility of Tax and Credit for Tax Withheld. The tax
deducted and withheld at source on compensation income shall
neither be allowed as a deduction from the employer's gross
income nor from the recipient's gross compensation income. The
entire amount of the compensation from which the tax is withheld
shall be included in gross income to be reported in the return
required to be made by the recipient of the income without
deduction for such tax. The creditable tax withheld at source,
however, is allowable as a credit against the tax imposed by the
NIRC to the recipient of the income. Any excess of the tax
withheld at source, over the tax ascertained to be due on the
income tax return shall be refunded or automatically credited, at
the taxpayer's option, to the recipient of the income. Such refund
or credit shall be without prejudice to whatever adjustments may
be proper after field investigation or upon information relative to
the taxpayer's income tax liability under the main provisions of
the Code, as amended. If the tax has actually been withheld at
source, a credit or a refund shall be made to the recipient of the
income even though such withheld tax has not been paid to the
government by the employer. For the purpose of the credit, the
recipient of the income is the person subject to tax, on whose
compensation the tax was withheld.
Any excess of the tax which was withheld on compensation over
the tax due from the taxpayer shall be returned not later than July
15 of the following year. Refunds made after such time shall earn
interest at the rate of six percent (6%) per annum, starting after
the lapse of the three month period up to the date when the
refund is made.
Refunds shall be made upon warrants drawn by the Commissioner
or by his authorized representative without the necessity of
counter-signature by the Chairman, Commission on Audit or the
latter's duly authorized representative as an exception to the
requirement prescribed by Section 49, Chapter 8, Subtitle B, Title I
of Book V of Executive Order No. 292, otherwise known as the
after such change. The employer shall then make the necessary
adjustments on the withholding tax of the employee based on the
new information;
(2) The employer shall transmit both the original and duplicate
copies of the Application or Certificate (after accomplishing the
portion for Employer's information of either forms) to the Revenue
District Officer of the City or Municipality where the employer has
his legal residence or place of business within thirty (30) days
following its receipt from the employee. The duplicate copy duly
stamped received by the BIR shall be given to the employee.
(3) The employer shall review the exemptions of the employees
and shall, in the computation of taxes required to be withheld on
the compensation of employees, apply the correct and applicable
exemptions as provided in these regulations.
(4) In case the husband waives his right to claim the additional
exemptions of children in favor of his wife, he shall accomplish a
waiver form (BIR Form No. ____) in accordance with the following
procedures:
(a) Fill up three (3) copies of the prescribed waiver form (BIR Form
No. ____)
(b) Submit to his employer within ten (10) days from employment,
together with the BIR Form 1902 said waiver form for
acknowledgment in the space provided for that purpose.
The employer of the husband shall:
(i) After filling up the acknowledgment portion of the waiver form,
retain the duplicate copy of the form and furnish the employee
the original and triplicate copies for submission to the employer of
the wife and for file of the employee, respectively.
(ii) Stop deductions of exemptions of children from the husband's
compensation income starting the following month.
The employer of the wife shall:
Upon receipt of copy of the waiver form duly acknowledged by the
employer of the husband, start deducting exemptions of children
from the wife's income on the month when the employer of the
(a) Failure to file any return and pay the tax due thereon as
required under the provisions of the Code or these regulations on
the date prescribed; or
(b) Unless otherwise authorized by the Commissioner, filing a
return with an internal revenue officer other than those with
whom the return is required to be files; or
(c) Failure to pay the deficiency tax within the time prescribed for
its payment in the notice of assessment; or
(d) Failure to pay the full or part of the amount of tax shown on
any return required to be filed under the provisions of the Code or
these regulations, or the full amount of tax due for which no
return is required to be filed, or before the date prescribed for its
payment; or
(e) In case of willful neglect to file the return within the period
prescribed by the Code or regulations, or in case a false or
fraudulent return is willfully made, the penalty to be imposed shall
be fifty percent (50%) of the deficiency tax, in case any payment
has been made on the basis of such return before the discovery of
the falsity or fraud.
(f) The penalties imposed hereunder shall apply in the case of a
deficiency tax assessment which has become final and executory
but which is not paid within the time prescribed for payment. The
interest shall be imposed on the total amount due, inclusive of the
deficiency increments.
(2) Interest There shall be assessed and collected on any
unpaid amount of tax, an interest at the rate of twenty percent
(20%) per annum, or such higher rate as may be prescribed for
payment until the amount is fully paid.
(3) Deficiency Interest Any deficiency in the basic tax due, as
the term is defined in the Code, shall be subject to the interest
prescribed in paragraph (a) hereof, which interest shall be
assessed and collected from the date prescribed for its payment
until the full payment thereof. pr
If the withholding agent is the government or any of its agencies,
only one return for the taxable year shall be filed by either spouse
to cover the income of both spouses.
(D) Employees whose total compensation income, regardless of
the amount, whether from a single or several employers during
the calendar year, the income tax of which has not been withheld
correctly, that is, that the total withholding tax does not equal the
total tax due on total compensation income for the taxable year.
(E) In case of married individuals where one of the spouses
received compensation income exceeding P60,000, a return shall
be filed to include the income of the other spouse whose
compensation is P60,000 or less.
SECTION 2.83.5. Registration as Withholding Agent. Every
person who makes payment or expects to make payment of
compensation in the amount of sixty thousand pesos (P60,000.00)
or more a year or five thousand pesos (P5,000.00) monthly, to
any single employee shall register by filing in duplicate, with the
Revenue District Office (RDO) of the City or Municipality where his
legal residence or place of business is located, an Application for
Registration as a withholding agent using the form prescribed by
the Bureau not later than ten (10) days after becoming an
employer.
SECTION 2.83.6. Applicability of Constructive Receipt of
Compensation. The withholding tax on compensation shall
apply to compensation actually or constructively paid.
Compensation is constructively paid within the meaning of these
Regulations when it is credited to the account of or set apart for
an employee so that it may be drawn upon by him at any time
although not then actually reduced to possession. To constitute
payment in such a case, the compensation must be credited or
set apart for the employee without any substantial limitation or
restriction as to time or manner of payment or condition upon
which payment is to be made, and must be made available to him
so that it may be drawn upon at any time, and its payment
brought with his control and disposition. A book entry, if made,
(4) Franchises
(a) On gross payments to all franchises on radio and/or television
broadcasting companies whose annual gross receipts of the
preceding year does not exceed P10,000.00 Three percent
(3%)
(b) On gross payments to franchises on electric, gas and water
utilities Two percent (2%)
(5) Banks and non-bank financial intermediaries
(a) On interest, commissions and discounts paid or given to banks
and non-bank financial intermediaries arising out of lending
activities as well as financial leasing, on the basis of the
remaining maturities of the instrument
Short-term maturity (not exceeding 2 years) 5%
Medium-term maturity (over 2 year but not exceeding 4 years)
3%
Long-term maturity
(i) over 4 years but not exceeding 7 years 1%
(ii) over 7 years 0%
(b) On dividends 0%
(c) On royalties, rentals of property, real or personal, profits from
exchange and all other gross income Five percent (5%)
(6) Finance companies
(a) On interest, discounts and other items of gross income paid to
finance companies and other financial intermediaries not
performing quasi-banking functions Five percent (5%)
(b) On interests, commissions and discounts paid from their loan
transactions from finance companies as well as financial leasing
based on the remaining maturities of the instruments:
Short-term maturity (not exceeding 2 years) 5%
Medium-term maturity (over 2 years but not exceeding 4 years)
3%
Long-term maturity
(i) over 4 years but not exceeding 7 years 1%
(ii) over 7 years 0%