BIR shelves tax hike on income payments

The Bureau of Internal Revenue (BIR) has shelved its plan to increase the rate on the expanded creditable withholding tax that is levied on self-employed individuals.
Kim Jacinto-Henares, BIR commissioner said that based on a public hearing last month, affected taxpayers warned that to increase the creditable withholding tax (CWT) rate might result in the influx of tax refunds and unutilized tax credits.

“The BIR does not want to be in the refund position,” Jacinto-Henares said.

Citing the position papers submitted by tax practitioners, individuals engaged in various professions and corporations who are acting as withholding agents, Jacinto-Henares said that tax refund may indeed take place in the event that the tax withheld against certain income payments under the CWT scheme are greater than the actual tax dues.

“Although the objective [in raising the CWT] is to increase the government’s revenues by increasing the collection of taxes in advance or before it becomes due, such goal might be defeated since chances are, they [taxpayers] would come to us and demand for tax refunds,” she said.

Another concern that was raised in the position papers, the BIR chief said is that some corporations fear that they may end up remitting more taxes to the BIR as withholding agents to the detriment of their trade or businesses since the revenues they actually earn could be lower than the taxes they withheld.

CWT is not a tax but rather a procedure to collect tax that is being withheld by the payor/debtor in favor of the BIR before it settles its monetary obligation to a payee or creditor.

An example of which, is the attorney-client relationship, lawyer being the payee/creditor for the professional services rendered, while the client, generally a corporation as the payor/debtor for engaging the professional service of the lawyer and at the same time, the party acting as the withholding agent.

Such withholding made by the payor/ debtor-corporation will be the “CWT” which would then be presented to the BIR by the payee/creditor-taxpayer on the date they file their income tax returns to claim deduction on their tax due.

The similar certificate would also be presented by the debtor/payee, individual or corporate to the bureau to claim deduction or to reflect as an expense to warrant lower income tax.

“The problem sets in if the payee-taxpayer would not only claim deductions on his or her income tax dues, but when he starts claiming tax refunds on the ground that the taxes withheld against him on income payments are greater that his actual tax due,” the BIR chief explained.

The planned increase on CWT was originally meant to raise the taxes partly paid in advance by self-employed individuals engage in trade, businesses, sales, services and the practice of profession.
Generally, such class of income earners is subject to 10 percent creditable withholding tax if their income exceeds P720, 000 a year, and to 5 percent if lower.

However, some other similarly situated income earners are only being levied 2 to 4 percent CWT. –Katrina Mennen A. Valdez, Reporter, Manila Times