“Options! Options! Options!” – This was one of the lines I would always remember in the movie Four Sisters and a Wedding. The movie revolves around the abrupt decision of CJ, the youngest in the family, to get married to his fiancée, Princess. His four sisters, Teddie, Bobbie, Alex and Gabbie, connived to formulate a plan to stop the wedding from happening. One of which is to provide CJ with other options as the four sisters believed that CJ is only marrying Princess as she was the “best candidate in a diminishing pool of options.”
The continuous improvement in the tax rules and regulations gives taxpayers an additional option specifically on the over remittance of expanded withholding tax (EWT). The new option allows the taxpayer to carry over the over remittance to the succeeding quarter. However, before we explore the new option, let us revisit the old rules.
The rules and regulations, before the TRAIN (Tax Reform for Acceleration and Inclusion) Act took effect, provide two options in case the taxpayer overpays EWT. The options are (1) to file a claim for refund or (2) to be issued a tax credit certificate (TCC). These options were reiterated in a ruling (New Coast Hotel, Inc. vs. Commissioner of Internal Revenue) promulgated by the Court of Tax Appeals (CTA) en banc (EB). In the case, the taxpayer filed its EWT return for July 2012. Thereafter, the taxpayer filed an amended EWT return and reflected an over remittance in the amended return. The taxpayer indicated its intention to seek a refund on the over remittance by marking the “To be refunded” box. However, when the taxpayer filed its EWT return for the month of August, it reported the over remittance from the amended July 2012 return as “Advance Payments Made.”
Thereafter, the taxpayer received a Preliminary Notice from the Large Taxpayers-Document Processing and Quality Assurance Division (LT-DPQAD) which indicated that the August EWT return could not be processed due to underpayment of tax. The LT-DPQAD stated that the offsetting of EWT is not allowed. Determined, the taxpayer filed a letter addressed to the Commission of Internal Revenue (CIR) requesting the cancellation and withdrawal of the assessment. However, without waiting for the decision for the CIR, the taxpayer paid the assessed deficiency to stop the accumulation of interest and subsequently filed a claim for refund.
The CTA EB ruled that the over remittance of EWT when the taxpayer filed its July EWT return cannot be used to offset against EWT due on the succeeding period or be treated as an advance tax payment. Line 18 of the BIR Form No. 1601-E only allows taxpayers to choose any of the two options in, i.e., to be refunded or to be issued a TCC. The CTA EB states that clearly, that the option to carry over the excess to the subsequent month/s is not a remedy.
The CTA EB also noted that the taxpayer reflected the over remittance in the amended July 2012 return as “Advance Payments Made” of the August 2012 EWT return. The CTA EB took note that the payment form (BIR Form No. 0605) is accomplished every time a taxpayer pays taxes and fees which do not require the use of a tax return (e.g., second installment of income tax return, deficiency taxes, delinquency tax, registration fees, advances payments, etc.). In case of over remittance, BIR Form No. 0605 is not accomplished. Hence, it is clear that the “advance payments made” contemplated in BIR 1601-E do not refer to an over remittance of EWT made from previous month/s.
The above rule has proven to be very inefficient and sometimes overly difficult, on the part of the taxpayer. Any mistake in the computation of the EWT which results in over remittance requires the taxpayer to file a claim for refund or TCC. As the refund process of overpaid taxes is most times too costly in terms of time and effort on the part of the taxpayers, such overpaid taxes remain unclaimed for long periods.
Hence, the issuance of a new regulation by the BIR giving the taxpayers a more viable option to claim overpaid EWT offers a new ray of hope to taxpayers. This is Revenue Regulations (RR) No. 11 -2018 issued by the Bureau of Internal Revenue (BIR) on March 15, 2018. The RR provides the new forms and deadline for filing of EWT returns. In the RR, taxpayers are instructed to use BIR Form No. 0619E for the monthly remittance of EWT and BIR Form No. 1601-EQ for filing the quarterly EWT return.
The BIR further publicized the new BIR Form No. 1601-EQ through the issuance of Revenue Memorandum Circular (RMC) No. 27-2018. The RMC provides that the amount to be indicated in the return shall be the total taxes withheld for the quarter. Likewise, remittances made for the first two months of the quarter using the BIR Form No. 0619E shall also be reflected therein. In the event that the result after indicating the total taxes withheld and remittance made for the quarter is still payable, the taxpayer shall remit the tax due thereon. On the other hand, in case of over remittance, the amount can be carried over to the next taxable quarter within the same taxable year. Such option was reflected in the new BIR Form No. 1601-EQ. Before, this option was not available in the old EWT return. (See illustrations)
Now, taxpayers have the option to carry over the overpayment for EWT to the next taxable quarter. However, it should be emphasized that the new form allows the carrying over of an over remittance to the next quarter but only within the same calendar year. It specifically stated that the carrying over is not applicable to the succeeding year.
The additional option given to taxpayers is a good indication that the BIR is continuously improving our withholding tax system. This new option is indeed more practical on the part of the taxpayers. It allows for easy means of correcting mistake which resulted to over remittance of taxes. I am hoping that the tax authority will give more Options! Options! Options! to ease the tax compliance requirements in our country.
Let’s Talk Tax is a weekly newspaper column of P&A Grant Thornton that aims to keep the public informed of various developments in taxation. This article is not intended to be a substitute for competent professional advice.
Anthony Joseph A. Cometa is a manager of Tax Advisory & Compliance division of P&A Grant Thornton, the Philippine member firm of Grant Thornton International Ltd.