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Local Government Units' Internal Revenue Allotment and Withholding Tax Obligations

Learn about the allocation of the internal revenue allotment for local government units and the responsibilities of withholding agents for collecting withholding tax.

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Local Government Units' Internal Revenue Allotment and Withholding Tax Obligations

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  1. September 14, 2011 Hotel Stotsenberg, Clark Pampanga

  2. INTERNAL REVENUE ALLOTMENT FOR LOCAL GOVERNMENT UNITS (LGU’s) (Forty percent of the National Internal Revenue Taxes collected by the government) Annual Budget – Php XXXX (100%) Province 23% Cities 23% Municipalities 34% Barangays 20% Source: LOCAL GOVERNMENT CODE OF 1991

  3. REVENUE MEMORANDUM ORDER • NO. 8-2003 (March 3,2003) • I. OBJECTIVES • This Order is issued to: • Ensure the efficient compliance of government withholding agents to existing withholding tax laws, rules and regulations and other related issuances. • Identify government officials designated as withholding agents personally responsible for the correct withholding of tax and its timely remittance. • x

  4. 3. Reiterate Item II(1) of Revenue Memorandum Order No. 14-98 and amend Revenue Memorandum Order No. 70-98 and implement the provisions of RA 1051, EO 651 and RR 1-87. 4. To effect and monitor collection of delinquent accounts/final assessments from LGUs.

  5. WITHHOLDING TAX A MANNER OF COLLECTING A KIND OF TAX WHICH IS AN ADVANCE PAYMENT OF THE TAX DUE.

  6. WITHHOLDING ON GOVERNMENT MONEY PAYMENTS

  7. ----is a tax withheld by government bureaus, offices & instrumentalities, including government-owned or controlled corporations and local government units, before making any payments to private individuals, corporations, partnerships and/or associations.

  8. WHO ?

  9. Who is a withholding agent? A withholding agent is any person or entity who is required to deduct and remit the taxes withheld to the government.

  10. WHO ARE REQUIRED TO WITHHOLD? • IN GENERAL, ANY JURIDICAL PERSON, WHETHER OR NOT ENGAGED IN BUSINESS • AN INDIVIDUAL WITH RESPECT TO PAYMENTS MADE IN CONNECTION WITH HIS TRADE OR BUSINESS • ALL GOVERNMENT OFFICES, INCLUDING GOVERNMENT OWNED AND CONTROLLED CORPORATIONS, PROVINCIAL, CITY, MUNICIPAL GOVERNMENTS AND BARANGAYS.

  11. WHO ARE EXEMPTED FROM WITHHOLDING? • NATIONAL GOVERNMENT AND ITS INSTRUMENTALITIES, INCLUDING PROVINCIAL, CITY OR MUNICIPAL GOVERNMENTS • PERSONS ENJOYING EXEMPTION FROM PAYMENT OF INCOME TAXES PURSUANT TO THE PROVISIONS OF ANY LAW, GENERAL OR SPECIAL

  12. WHEN ARE PRIVATE ENTITIES CONSIDERED AS WITHHOLDING AGENTS FOR VAT PURPOSES? ----AS AN EXCEPTION TO THE GENERAL RULE, GROSS PAYMENTS MADE TO NON-RESIDENTS SHALL BE SUBJECTED TO THE FINAL WITHHOLDING VAT OF 12% BY PRIVATE ENTITIES MAKING THE INCOME PAYMENT (RMC 5-2006 & 7-2006)

  13. REVENUE MEMORANDUM ORDER NO. 8-2003 dated March 3, 2003 Identified the Government officials designated as withholding agents personally responsible for the correct withholding of tax and its timely remittances. RESPONSIBILITY OF GOVERNMENT OFFICIALS They are charged with the DUTY to correctly withhold taxes on compensation, expanded and final withholding taxes as well as government money payments to persons registered as NVAT and VAT taxpayers and the timely remittance of taxes withheld.

  14. MEMORANDUM – ACIR COLLECTION SERVICE July 22,2004 In order to implement strictly the withholding tax requirements specifically compliance of govt offices, in relation to E.O. 651 as implemented by RR 1-87 as amended, we are directed to require all govt offices and agencies including GOCC’s as well as provincial, city, municipal and barangay, to identify and submit an updated name of personnel charged with the duty to deduct, withhold and remit taxes withheld on Compensation, Expanded, Final and Govt Money Payments (GMP) on Percentage and Value added Tax including Franchise Tax.

  15. The names of the incumbents of such positions shall be submitted by the head of office concerned to the Commissioner of Internal Revenue thru the Revenue District Office within thirty (30) days from receipt of such notification. Any change of such incumbents shall be reported, and names of the replacement submitted within ten (10) days from such change or replacement.

  16. The designated official shall be personally liable for the additions to the tax prescribed in Chapter 1, Title X of the National Internal Revenue Code, as amended, for violations of withholding tax laws and regulations.

  17. RESPONSIBILITY OF GOVERNMENT OFFICIALS • The following government officials are personally charged with the duty to correctly withhold taxes on compensation, expanded and final withholding tax as well as government money payments to persons registered as Non-VAT (percentage, franchise, etc.) and VAT taxpayers and the timely remittance of taxes withheld:

  18. Local Government Units: • 1. Provinces- Governor, Provincial Treasurer and Provincial Accountant • 2. Cities- Mayor, City Treasurer and City Accountant • 3. Municipalities- Mayor, Municipal Treasurer and Municipal Accountant • 4. Barangays- Barangay Captain and Barangay Treasurer

  19. Duties and obligations of the withholding agent. • a) To Register–within ten (10) days (BIR Form 1903) • b) To Deduct & Withhold- from all money payments subject to withholding tax

  20. c) To Remit/File the Tax Withheld/ Return - at the time prescribed by law and regulations (BIR Form No. 1600 & 1601 + MAP) • d) To File Annual Return – BIR Form No. 1604 with Alphalist of Payees • e) To Issue Withholding Tax Certificates– within 10 days after end of the month/upon request of payee (BIR Form No. 2306 & 2307)

  21. WHAT?WHEN?HOW?

  22. Types of Withholding Taxes on Government Money Payments(GMP) • Creditable Withholding Tax • Final Withholding Tax on VAT • Withholding on Percentage Tax

  23. CREDITABLE WITHHOLDING TAX SYSTEM • THE TAX WITHHELD IS INTENDED TO EQUAL OR AT LEAST APPROXIMATE THE TAX DUE OF THE PAYEE ON THE SAID INCOME. • THE INCOME RECIPIENT IS STILL REQUIRED TO FILE AN INCOME TAX RETURN TO REPORT THE INCOME AND PAY THE DIFFERENCE ON THE TAX DUE AND THE TAX WITHHELD.

  24. Casual or single purchase of GOODS and SERVICES worth Php 10,000 and below– not subject to EWT If regular purchases – subject to EWT for Php 1,000 & above (6 times & more)

  25. MONTHLY ALPHALIST OF PAYEES (MAP) • IS A CONSOLIDATED ALPHALIST OF INCOME EARNERS FROM WHOM TAXES HAVE BEEN WITHHELD FOR A GIVEN PERIOD. THIS IS REQUIRED TO BE SUBMITTED AS AN ATTACHMENT TO THE MONTHLY WITHHOLDING TAX RETURNS (1601E, 1601F, 1600)

  26. WHEN TO WITHHOLD? • THE OBLIGATION OF THE PAYOR TO DEDUCT AND WITHHOLD THE TAX ARISES AT THE TIME AN INCOME PAYMENT IS ACCRUED OR RECORDED AS AN EXPENSE OR ASSET, WHICHEVER IS APPLICABLE, IN THE PAYOR’S BOOKS, WHICHEVER COMES FIRST. PAYABLE MEANS THE DATE THE OBLIGATION BECOMES DUE, DEMANDABLE OR LEGALLY ENFORCEABLE .

  27. FINAL WITHHOLDING TAX • THIS IS CONSIDERED AS THE FULL AND FINAL PAYMENT OF THE TAX DUE FROM THE PAYEE ON THE SUBJECT TRANSACTION. • FAILURE TO WITHHOLD THE TAX SHALL BE COLLECTED FROM THE PAYOR/WITHHOLDING AGENT. • THE INCOME RECEPIENT IS NOT REQUIRED TO FILE AN INCOME TAX RETURN IN SO FAR AS INCOME SUBJECTED TO FINAL WITHHOLDING TAX.

  28. WITHHOLDING OF VALUE-ADDED TAX • REVENUE REGULATIONS 14-02 • THE GROSS PAYMENTS MADE BY THE GOVERNMENT TO SELLERS OF GOODS & SERVICES SHALL BE SUBJECTED TO THE FOLLOWING TAX RATES: • IN GENERAL, PAYMENT BY THE GOVERNMENT OR ANY OF ITS POLITICAL SUBDIVISIONS, INSTRUMENTALITIES OR AGENCIES INCLUDING GOCCS ON ACCOUNT OF ITS PURCHASE OF GOODS FROM SELLERS AND SERVICES RENDERED BY SERVICE CONTRACTORS WHO ARE SUBJECT TO VAT (FINAL WITHHOLDING TAX – RR16-2005) 5% • PAYMENTS FOR SERVICES RENDERED IN THEPHILIPPINES BY NON-RESIDENTS – FOR LEASE OF PROPERTY RIGHTS FOR SERVICES RENDERED TO LOCAL INSURANCE COMPANIES FOR PREMIUMS PAYABLE TO NONRESIDENT INSURANCE • OTHER SERVICES RENDERED IN THE PHILIPPINES BY NONRESIDENTS • VAT WITHHOLDING 12%

  29. WHERE THE GOVERNMENT HAS REGIONAL OFFICES, BRANCHES OR UNITS, THE WITHHOLDING AND REMITTANCE OF THE VAT WITHHELD MAY BE DONE ON A DECENTRALIZED BASIS. DECENTRALIZED REMITTANCE IS NOT APPLICABLE IF THE TAXPAYER WITHHOLDING AGENT IS CLASSIFIED AS LARGE TAXPAYERBY THE COMMISSIONER OF INTERNAL REVENUE

  30. Revenue Memorandum Circular No. 23-2007 Dated March 20, 2007 Clarifications on the computation of Withholding Taxes and other requirements on Government Money Payments due or payable to supplier of goods and/or services. EXEMPTED FROM WITHHOLDING: • Purchase of goods and/or services by any government official and employee recorded as reimbursable allowance, benefit or incentive to government official and employee by the concerned government office (e.g. RATA) • Casual government purchases amounting to not more than P 10,000.00 • “Casual Purchases” means the number of transactions • with the supplier is less than six (6)in a year regardless of amount per transaction either on the previous or current year.

  31. ISSUANCES: Revenue Memorandum Circular No. 13-2007 Dated February 05, 2007 Reimbursable expenses made by government officials are treated as Representation and Transportation Allowance (RATA) or allowances given to public officers and employees incurred in the performance of their official duties. The expenses are made in their personal capacity even if reimbursed by the government agency. As such, these are not subject to the 5% withholding tax on Final VAT.

  32. Revenue Memorandum Circular No. 45-2007 Dated July 06, 2007 Reiteration for the Top 10,000 private corporations and government agencies related to the withholding of 2% EWT on purchases of services such as those incurred on interest on loans, services fees and other charges extended by banks, quasi-banks and other financial institutions, insurance premiums, (life and non-life), telecommunications, electricity, and other utilities, and other income payment on services. Revenue Memorandum Circular No. 71-2007 Dated October 9, 2007 Accessibility of implementation on taxpayers between the BIR and local government units for tax collection purposes. The BIR can request from the LGU details of the costs, volume of production, receipts or sales, and gross income of taxpayers among others

  33. The LGU can request from the BIR information in order to guide them in collecting the correct local taxes, fees and charges from the list of taxpayers. Revenue Memorandum Circular No. 05-2006 Dated November 02, 2005 Government Money Payment chart is prescribed for the computation of taxes withheld at source on the sale of goods and services to the government or any of its political subdivisions. The withholding includes creditable withholding tax, Final VAT and Percentage tax. The new government money payment chart takes into consideration the new rates provided in RR 12-2001, RR 14-2002, RR 30-2003 and RR 16-2005.

  34. REPUBLIKA NG PILIPINAS KAGAWARAN NG PANANALAPI KAWANIHAN NG RENTAS INTERNAS REVENUE REGION NO. 9 REVENUE DISTRICT NO 055 BIR OCN 1RC0000164805 Form No. Revised July 1997 CERTIFICATE OF REGISTRATION TIN NAME REGISTRATION DATE 999-999-999 ARAÑEZ, PAULO REBWEL A. 9/9/1999 REGISTERED ADDRESS P. PATERNO ST., SAN PABLO CITY LAGUNA 4000 REGISTERED ACTIVITY(IES) TAX TYPE INCOME TAX REGISTRATION FEE VALUE - ADDED TAX WITHHOLDING TAX - COMPENSATION TRADE NAME LINE OF BUSINESS / INDUSTRY ANN SUCCESS STUFFED TOYS 1729 MANUFACTURE OF OTHER TEXTILES, NEC I HEREBY CERTIFY THAT THE ABOVE NAMED PERSON IS REGISTERED AS INDICATED ABOVE, UNDER THE PROVISIONS OF THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED. RDO DRY SEAL RUSTICO M. BAYANI ASST. REVENUE DISTRICT OFFICER REVENUE DISTRICT OFFICER (signatureover printed name) THIS CERTIFICATE MUST BE EXHIBITED CONSPICUOUSLY IN THE PLACE OF BUSINESS

  35. PUNISHABLE ACTS OR OMISSIONS • EVERY OFFICER OR EMPLOYEE OF THE GOVERNMENT OF THE REPUBLIC OF THE PHILIPPINES OR ANY OF ITS AGENCIES AND INSTRUMENTALITIES, ITS POLITICAL SUBDIVISIONS, AS WELL AS GOCCS CHARGED WITH THE DUTY TO DEDUCT AND WITHHOLD ANY INTERNAL REVENUE TAX AND TO REMIT THE SAME IN ACCORDANCE WITH THESE EGULATIONS SHALL, UPON CONVICTION FOR EACH ACT OR OMISSION, HEREIN SPECIFIED, BE FINED IN A SUM OF NOT LESS THAN P5000.00 BUT NOT MORE THAN P50,000.00 OR IMPRISONED FOR A TERM OF NOT LESS THAN 6 MONTHS AND ONE DAY BUT NOT MORE THAN TWO YEARS, OR BOTH.

  36. FAILS OR CAUSES THE FAILURE TO DEDUCT AND WITHHOLD ANY INTERNAL REVENUE TAX COVERED BY THESE REGULATIONS. • FAILS OR CAUSES THE FAILURE TO REMIT THE TAXES DEDUCTED AND WITHHELD WITHIN THE TIME PRESCRIBED THEREIN. • FAILS OR CAUSES THE FAILURE TO FILE THE RETURN OR ISSUE THE CERTIFICATE REQUIRED.

  37. SUMMARY

  38. TRANSACTIONS WITH VAT REGISTERED SUPPLIERS BIR Form 2307 - Distribution of certificates is on the 20th of the following month BIR Form 2306 - Distribution of certificates is on the 10th of the following month

  39. TRANSACTIONS WITH NVAT REGISTERED SUPPLIERS *BIR Form 2307-Distribution of certificates is on the 20th of the following month **BIR Form 2307-Distribution of certificates is on the 10th of the following month

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