BIR raises withholding tax rates

The Bureau of Internal Revenue (BIR) has issued a new tax regulation that imposes a 15 percent withholding tax on Filipinos employed by multinationals and offshore banking units.

Revenue Regulations (RR) 6-2001 also increases to 20 percent the creditable withholding tax on professionals from the 10 percent applied earlier. Effectivity date is the usual 15 days after publication in a newspaper of general circulation.

The new tax regulations form part of the short-term measures implemented by government to increase revenues to the targeted 2001 budget deficit of P145-billion. Strategic or long-term tax reform measures will be introduced within the next few months.

Section 2 of RR 6-2001 enforces a 15 percent withholding tax on alien individuals employed by regional or area headquarters of multinationals, offshore banking units petroleum service contractors and subcontractors.

It also applies to Filipino citizens employed by the above mentioned firms occupying the same positions as those aliens (managerial and technical positions) employed by multinational companies, regardless of whether or not there is an alien executive occupying the same position.

Meanwhile, Section 3 or the revised rates on creditable withholding tax were increased to 20 percent from 10 percent on all types of professionals.

"It is one way of managing tax collections in the intermediate future. By increasing the withheld tax, government is assured of an advanced payment of the tax and constant cash flow," BIR Commissioner Rene G. Bañez said.

Bañez clarified, however, that it could be credited to the individual’s income tax returns at the end of the year.

Also known as survival strategies, the short-term strategy is designed to help the BIR achieve its revenue target of P388-billion this year. It is, likewise, designed to protect the integrity of the revenue base, strengthen its organization and internal resources, restore credibility and integrity, and strengthen enforcement.

"Long-term strategies include an overhaul in the entire tax system which is envisioned to be transparent, simple, efficient and equitable," Bañez said in an earlier interview.

Bañez, however, assured that the long-term strategies do not include a reduction in personnel. "But we believe that an increase in compensation must be considered by the authorities."

Covered by the new withholding tax are such charges as professional fees, talent fees, promotional fees, allowances, and per diems.

From a five percent withholding tax to 10 percent are individual lawyers, certified public accounts, doctors of medicine, architects, engineers (civil, electrical, chemical, mechanical, structural, industrial, mining, sanitary, metallurgical and geodetic), marine surveyors, doctors of veterinary science, dentists, professional appraisers, connoisseurs of tobacco, actuaries and interior decorators.

Slapped a 20 percent withholding tax from just 10 percent are professional entertainers (like actors, actresses, singers, emcees, directors), professional athletes (including basketball, pelotaris and jockeys), and other recipients of talent fees.

Fees of directors who are not employees of the company paying such fees, whose duties are confined to attendance at and participation in the meeting of the board of directors are subject to the 20 percent withholding tax.

Insurance agents and insurance adjusters, management and technical consultants, bookkeeping agents and agencies are assessed the 20 percent withholding tax.

An increase to 10 percent from the original five withholding tax are professional fees, talent fees, etc., for service of taxable juridical persons. That also holds true for income payments to customs, insurance, real estate and commercial brokers and agents of professional entertainers.