Whether the Term "Income Payment" Used in Section 1(n) of Revenue Regulations No. 6-85, as amended by Revenue Regulations No. 12-94, Refers to Gross Payments, Including the Excise Tax Component of the Payment

April 3, 1995 BIR RULING NO. 065-95 50 (b) 000-00 065-95 Siguion Reyna, Montecillo and Ongsiako 8755 Paseo de Roxas, Philcom Bldg. Makati, Metro Manila Attention: Attys . Carlos C . Platon and Jose Lis Leagogo Gentlemen : This refers to your letters dated August 9, 1994 and February 24, 1995, requesting in behalf of your client, La Suerte Cigar and Cigarette Company, a ruling as to whether the term "income payment" used in Section 1(n) of Revenue Regulations No. 6-85, as amended by Revenue Regulations No. 12-94, refers to gross payments, including the excise tax component of the payment. It appears that one of your client's buyer which belongs to the 5,000 corporations withheld the equivalent 1% creditable expanded withholding tax on the total amount which it paid to BBB, its local supplier of goods; and that a portion of the total amount paid to BBB represents excise tax (ad valorem) previously paid by La Suerte Cigar and Cigarette Company and which it passed on to the buyer. You contended that if the excise tax component (which constitutes about 2/3 of the payment) were included in the income payments on which the withholding tax would be based, a very substantial amount would be withheld from your client each quarter, thus depriving the latter of the cash necessary in its operations and survival, not to mention the fact that the resulting withheld tax would be twice the company's net income. In reply, please be informed that this Office agrees with your contention that the 1% creditable expanded withholding tax which any of the 5,000 corporations is required to deduct and withhold from their local suppliers of goods should not include that portion representing the excise tax billed to the customers. This is evident from the provisions of Section 1(n) of Revenue Regulations No. 12-94 which used the words "income payments" in the determination of the 1% creditable expanded withholding tax. "Income Payments" should be interpreted as pertaining to payments made for the purchase of articles/goods less the tax/es billed to the purchaser i.e., ad valorem and excise taxes. Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue