Philweb Corporation

July 30, 2009 BIR RULING [DA-(C-158) 421-09] BIR Ruling No. DA-204-06 & DA-363-07 Philweb Corporation The Enterprise Center, 17th Floor, Tower 1 6766 Ayala Avenue Makati City Attention: Mr. Roberto V. Ongpin Chairman Gentlemen : This refers to your letter to Secretary Margarito B. Teves requesting, in effect, for a ruling exempting from withholding tax winnings from the Premyo Sa Resibo (PSR) Program. PSR is a short messages system (SMS) or text-based raffle project of the government undertaken by the Philippine Amusement and Gaming Corporation (PAGCOR) in support of the Bureau of Internal Revenue's efforts to plug leakages in the tax collection system. PSR Jackpot is a text numbers game where participants may win the Progressive Jackpot amount. Four (4) distinct numbers from 1 to 56 shall be electronically drawn. In order to win the Jackpot, all four numbers selected by the participant/s should match the four numbers in the same order as these numbers were drawn. PSR JACKPOT shall be drawn weekly. Jackpot prize starts at FIVE MILLION pesos and increases after every draw until the jackpot is won. Then the prize is reset to FIVE MILLION pesos. EAcIST It is your contention that winnings from PSR raffle is exempt from taxation pursuant to Section 24 (B) (1) of the Tax Code of 1997, as amended ("Tax Code" for brevity) which exempts from withholding tax Lotto winnings and that it is the intent of the law to exempt from income taxation winnings from lottery operated by government owned and controlled corporations in furtherance of government programs and projects. We beg to disagree. It is the established rule in statutory construction not to extend the provision of a statute by implication beyond the clear import of the language employed, or to enlarge their scope as to include matters not specifically pointed out. Moreover, to exempt prizes and winnings of winners of PSR through a Revenue Memorandum Circular, would be adding or incorporating matters not provided in the law by administrative issuance which is beyond the province of this Office. Pursuant to Section 24 (A) of the Tax Code, as implemented by Section 2.57-1 of Revenue Regulations No. 2-98, as amended, a final tax at the rate of twenty percent (20%) is imposed, among others, upon prizes and winnings derived by individuals from sources within the Philippines except Philippine Charity Sweepstakes and Lotto winnings, viz. : "(B) Rate of Tax on Certain Passive Income: (1) Interests, Royalties, Prizes, and Other Winnings. A final tax at the rate of twenty percent (20%) is hereby imposed upon the amount of interest from any currency bank deposit and yield or any other monetary benefit from deposit substitutes and from trust funds and similar arrangements: royalties, . . .: prizes (except prizes amounting to Ten thousand pesos (P10,000.00) or less which shall be subject to tax under Subsection [A] of Section 24); and other winnings (except Philippine Charity Sweepstakes and Lotto winnings) , derived from sources within the Philippines . . ." (Emphasis ours.) SCIAaT The word Lotto above implies Philippine Lotto Draw produced by the PCSO. Note that the word "winnings" as used in the above provision is described by "Philippine Charity". In other words, "winnings" refer to Philippine Charity Sweepstakes winnings and Philippine Charity Lotto winnings. Finally, the exemption under Section 24 (B) (1) of the Tax Code refers to exemption from the requirement of withholding (on the part of the payor) and not exemption from the payment of income tax (on the part of the winner). Clearly, prizes and winnings are subject to income tax regardless of the amount. The liability for payment of the tax rests primarily on the payor as withholding agent (Section 2.57 (A) of Revenue Regulations No. 2-98, as amended). Under the final withholding tax system, the amount of income tax withheld by the withholding agent is constituted as a full and final payment of the income tax due from the payee on the said income. Under Section 57 (A) of the Tax Code, the organizer is considered as the withholding agent required by law to withhold such tax in the same manner and subject to the same conditions as provided in Section 58 of the same Code. The tax on prizes and winnings is imposed on the winner although the responsibility for the withholding of such tax is entrusted by law upon the payor (PCSO/PAGCOR). Under the withholding tax system, prizes and winnings in the amount exceeding PhP10,000.00 shall be subject to withholding. However, if the prize is PhP10,000.00 or less, there will be no requirement on the part of the payor for the withholding of the 20% final tax but the income recipient (winner) is required to file an income tax return as prescribed in Sections 51 and 52 of the Tax Code and declare the amount of his prize/winning in his income tax return, which amount shall be subject to tax under Section 24 (A) of the same Code. LLphil In view of the foregoing, winnings of winners of PSR amounting to more than P10,000.00 are subject to the 20% final withholding tax whereas the prizes amounting to P10,000.00 or less shall be subject to tax under Section 24 (A) of the Tax Code. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered as null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service