With the passage of the Tax Reform for Acceleration and Inclusion (TRAIN) law, tax forms have been revised and new tax forms have been introduced and circularized under Revenue Memorandum Circular (RMC) No. 27-2018.
One of the notable new forms is BIR Form 1601-EQ, otherwise known as the Quarterly Remittance Return of Creditable Income Taxes Withheld (Expanded). It is filed by every withholding agent or payor required to deduct and withhold taxes on income payments subject to creditable withholding taxes. The deadline for filing this return is on the last day of the month following the close of the quarter. However, taxes withheld during the first two months of every quarter shall be remitted to the Bureau of Internal Revenue (BIR) using BIR Form 0619-E, on or before the 10th day (for over-the-counter filers) or the 15th day following the month of withholding (for taxpayers enrolled in the electronic filing and payment system or eFPS filers). As of this writing, the BIR has yet to circularize this monthly remittance form.
Under the creditable withholding tax system, taxes withheld on certain income payments are intended to equal or at least approximate the tax due of the payee on said income. The income recipient is still required to file an income tax return to report the income, and to pay or carryover/refund the difference between the tax withheld and the income tax due, as applicable.
With the enactment of the TRAIN Law, the creditable withholding tax rates will range from 1% to 15% by Jan. 1, 2019. Currently, the tax rate ranges from 1% to 32%.
Under the old form (BIR Form 1601E), taxpayers had no option to carry forward or offset over-remitted expanded withholding taxes in the succeeding month or period. Although the overpaid withholding tax may be recovered by filing a claim for refund or for issuance of a tax credit certificate (TCC) within two years from the date of the erroneous payment, the affected taxpayer may find this costly, time-consuming and tedious as it will automatically trigger a tax audit or examination. Hence, in most cases, the affected withholding tax agent would opt to forego the over-remittance in favor of the BIR.
With the implementation of BIR Form 1601-EQ under RMC No. 27-2018, taxpayers can now heave a sigh of relief, being given the option to carry forward any over-remitted expanded withholding taxes to the next quarter, at least within the same calendar year. The last phrase means that only the over-remittance in the first to third quarters can be carried forward to the succeeding quarter. In the event of over-remittance in the fourth or last quarter, the taxpayer’s option would still be to file an application for refund or TCC.
The carry-forward feature of the new tax form will benefit taxpayers especially when over-remittance is sometimes unavoidable due to the following reasons:
(1) Application of incorrect withholding tax rate;
(2) Cancellation of transactions subject to withholding tax; or
(3) Any other errors that taxpayers may inadvertently commit in the preparation of tax returns.
It is important to note that in case of over-remittance, it is the responsibility of the withholding agent/payor to correct any BIR Form No. 2307 (Certificate of Creditable Tax Withheld at Source) issued to the income recipient, to ensure that no excess creditable withholding tax will be claimed by the same income recipient as settlement of its income tax liabilities.
On a related note, another new tax form circularized under RMC No. 27-2018 is BIR Form 1601-FQ or the Quarterly Remittance Return of Final Income Taxes Withheld. Just like BIR Form 1601-EQ, this new tax return shall be filed and paid not later than the last day of the month following the close of the quarter. Taxes withheld during the first two months of every quarter shall be remitted to the BIR using BIR Form 0619-F, on or before the 10th day (for over-the-counter filers) or the 15th day following the month of withholding (for eFPS filers). As of this writing, the BIR has yet to circularize this monthly remittance form.
Unlike the new quarterly return on creditable withholding tax (BIR Form 1601-EQ), however, BIR Form 1601-FQ does not have the carry-forward feature. Perhaps this is something that the BIR may want to reconsider adopting as it will help cut down on overpayments and potential refunds.
One classic example of a situation where overpayments often happens is on income payments to a non-resident alien who was initially identified as not engaged in trade or business at the beginning of the calendar year but is subsequently identified otherwise at the latter part of the year. In which case, the nonresident alien is taxed under the final withholding tax system at the beginning of the calendar year but thereafter subjected to withholding tax on compensation upon reclassification.
With the issuance of new tax regulations, circulars, orders and advisories covering the TRAIN Law, there is reason for the BIR to incorporate built-in measures to address errors and lapses in the filing and payment of taxes. As reforms in the tax system and policies are under way, we can expect the transition period to be one of adjustment and fine-tuning for both taxpayers and tax enforcers alike. For this, the BIR should be given credit for simplifying the filing system through the revised and enhanced tax forms.
The views or opinions expressed in this article are solely those of the author and do not necessarily represent those of Isla Lipana & Co. The content is for general information purposes only, and should not be used as a substitute for specific advice.
Renz Anthony K. Boaloy is an assistant manager with the Client Accounting Services group of Isla Lipana & Co., the Philippine member firm of the PwC network.