Expanded Withholding Tax (ETW) in the Philippines

by Richard A. Cañete, CPA

Posted on 2020-10-16

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Expanded withholding tax or “EWT” as it is commonly known in the Philippines is a kind of withholding tax on certain income payments. The Withholding of Creditable Tax at Source or simply called Expanded Withholding Tax is a tax imposed and prescribed on the items of income payable to natural or juridical persons, residing in the Philippines, by a payor-corporation/person which shall be credited against the income tax liability of the taxpayer for the taxable year (bir.gov.ph). This tax is then remitted to the Bureau of Internal Revenue (BIR).

EWT has three general characteristics;

1. 1.  
      1. It is withheld from certain income payments.
      2. It is creditable against the income tax due of the payee (the person to whom payment is due).
      3. This tax must be remitted by the withholding agent to the government through the BIR.

      When a person (often referred to as a “withholding agent”) makes a payment to a supplier/payee, the withholding agent is required by Revenue Regulations No. 2-98 of the BIR to deduct the withholding tax from the total amount payable. Generally, the amount to be deducted from that payment will depend on a table of withholding tax rates applicable. The most common of these tax rates are;

   2.  

      Tax Code		Description	Tax Rate
      Individuals	Corp
      		Payments of Professional fees (CPA’s, Lawyers, Engineers, etc.)
      WI010		- if the gross income of payee for the year does not exceed P3M	5%
      WI011		- if the gross income of payee for the year exceeds P3M	10%
      	WC010	- if the gross income of payee for the year does not exceed P720,000	10%
      	WC011	- if the gross income of payee for the year exceeds P720,000	15%
      WI100	WC100	Payments of Rentals	5%
      WI120	WC120	Payments to Contractors	2%

      
      

      **To know more about the complete withholding tax rates, visit www.bir.gov.ph/index.php/tax-information/withholding-tax.html

      For certain companies who are designated by the BIR as “Top Withholding Agents” (TWAs)and companies who are under the Taxpayer Account Management Program (TAMP), certain withholding taxes are mandatory.

   3.  

   4. Tax Code		Description	Tax Rate
      Individuals	Corp
      WI158	WC158	Payments to supplier of goods	1%
      WI160	WC160	Payments to supplier of services	2%

   5.  

   6. Withholding agentsare also obliged to issue to the payee a signed BIR Form 2307 or a “Certificate of Creditable Tax Withheld at Source” which contains the information and amount of tax withheld from such payments. In turn, this certificate will evidence the credit claim of the payee against his annual income tax due.

      Consequently, the failure to withhold tax on certain payments will result to the disallowance of the expense or costs from which EWT is deductibleduring the filing of annual income tax returns. Therefore, a company should carefully determine the appropriateness of withholding tax rates to apply for income payments made.

      On a monthly basis, the withholding agent is also required to remit to the BIR the total amount of taxes withheld within the period. A company who fails to remit these taxes will incurfurther tax liability.

      In other words, the imposition of EWT is an indispensable obligation by any company doing business in the Philippines. While the consequences for the failure to follow these guidelines can be severe, there are numerous smart applications that can easily manage these requirements. Today, accounting systems have become adopted to these regulations to ensure that the taxpayers’ obligations are accurately determined.Visit our website at www.n-pax.com/mcframega.php or contact us www.n-pax.com/contact.php and learn more about how our system, mcframe GA, can assist you in complying with EWT requirements.

                  

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