Taxpayers have checked the most talked-about list in the Philippine taxation scene today, and have noted whether they have been included, retained, or delisted therefrom. Taxpayers who were recently included in the list may have marked their calendars too, in order not to miss the commencement of their new obligation. Needless to say, the list being referred to is the list of top withholding agents (TWAs) who are obliged to withhold on their purchases of goods and services beginning November 1, 2018. For the new ones on the list, be forewarned that the resolve to withhold tax on purchases of goods and services is often easier said than done. Being aware of the responsibility is just the tip of the iceberg. More challenges are attached to your responsibility to withhold.
Any income payment whose nature is not specifically identified in Section 2.57.2 of Revenue Regulations No. 2-98, as amended, shall be classified either as a purchase of a good or service. Services include, among others, telephone charges (net of overseas communications tax), insurance premiums, service charges, and other charges considered as income of the service provider. Goods pertain to tangible personal property, such as office and pantry supplies, office equipment, and furniture and fixtures. Note that TWAs must withhold the tax on their purchases of goods and services from regular suppliers. A regular supplier of goods and services is one with whom a taxpayer has had at least six transactions, either in the previous or current year, or constituting a single purchase amounting to at least P10,000.
From a brief purchase of sticky notes and pens to a food catering service contract spanning two years, the core issue of the regular supplier test is the monitoring mechanism that must be adopted, especially by companies with voluminous and diverse transactions. As a conservative approach, some companies withhold tax from their payments to their suppliers of goods and services without checking the frequency of the purchases from the latter. In addition, the archiving of documents to prove that the purchases are casual ones, i.e., not from regular suppliers or a single purchase amounting to less than P10,000, has to be tightened. It can be gleaned from various Court of Tax Appeals (CTA) cases that the court meticulously checks the supporting documents of a taxpayer who claims that its purchases are casual ones which are, thus, not subject to 1% or 2% withholding tax. The court does not miss any detail, from the description of the purchase on the official receipt or lack thereof, to the date of the transaction. In a 2005 CTA case, among the pieces of evidence required to be presented in court is the Semestral List of Regular Suppliers (SRS). A purchase from a supplier not indicated therein is deemed as a casual purchase of a good or service. The SRS is required to be submitted by TWAs every July 31 of the current year and Jan. 31 of the following year to the Revenue District Office having jurisdiction over the TWA’s principal place of business.
The withholding of taxes on employee reimbursements is, likewise, left unresolved to this day. How do you withhold the taxes from company expenses paid by employees through cash, such as lodging, meals, transportation, representation, and other items frequently purchased that are of relatively small value and necessary for the business? When it comes to these types of purchases, the obligation to withhold is often administratively difficult to comply with. Some companies have issued corporate credit cards to their employees to eliminate the need to withhold taxes on expenses during business travel. We all know, however, that not all purchases can be paid for with credit cards. As a result, some companies end up shouldering the withholding taxes on these purchases. It is high time that the Bureau of Internal Revenue issues guidelines on easing the process of withholding the taxes on reimbursements. After all, one of the characteristics of a sound tax system is administrative feasibility.
Confusion lies as well on the withholding of tax on payments to government-owned and controlled corporations (GOCCs), agencies, or instrumentalities. Some taxpayers mistakenly believe that payments to government corporations are exempt from withholding tax, just because they are owned by the government. Payments to GOCCs, however, are subject to withholding tax, except for payments to the Government Service Insurance System, the Social Security System, the Philippine Health Insurance Corp., and local water districts.
Basically, all expenses of a TWA are subject to withholding tax, except those paid through company-issued credit cards and payments to entities such as general professional partnerships, cooperatives, business/civic leagues, and entities that are exempt from income tax or under income tax holiday. Pursuant to Revenue Memorandum Circular No. 8-2014, withholding agents shall require entities claiming exemption to provide a copy of a valid, current, and subsisting tax exemption or ruling which must explicitly recognize the grant of tax exemption, as well as the corresponding exemption from withholding tax.
The withholding of tax is not as linear as it sounds because, in some cases, the willingness to withhold tax and the means to do so are in utter disconnect. Familiarizing yourself with the twists and turns of withholding tax and being armed with the relevant regulations and industry practices would go a long way. Congratulations for being included in the list of top withholding agents. You, together with the ordinary withholding agents, are instruments for the prompt remittance of taxes to the government. With your help, incremental government revenue from monthly withholding tax remittances are to be expected.
Taxes to the nation are like fuel to cars. Fuel is only one of the things needed for a car to run; a good driver is still indispensable. No matter how full the tank is, if the driver is not good, the passengers will not reach their destination. Similarly, no matter how many taxes we remit, if the government is not true to its promises, our diligence in remitting taxes would be for naught. So while you continue to meet your obligation as withholding agents, join me in praying that every peso remitted contributes to the improvement of our beloved nation. There are bumps and potholes on the road ahead as a TWA, but we can hope that the bumpy ride is worth it, and hope further that this is not blind optimism.
Ma. Anneth Soledad Mirano is a senior of the Tax Advisory and Compliance Division of P&A Grant Thornton. P&A Grant Thornton is one of the leading audit, tax, advisory, and outsourcing services firms in the Philippines.