Publishing Presidential Decree No. 1351, dated April 17, 1978, Amending Sections 30 and 53 of the National Internal Revenue Code of 1977 to Authorize the Secretary of Finance to Require Withholding of Creditable Income Taxes from Certain Income Payments and to Require Proof of Such Withholding as an Additional Condition for Deductions from Gross Income

May 9, 1978 REVENUE MEMORANDUM CIRCULAR NO. 035-78 SUBJECT : Publishing Presidential Decree No. 1351, dated April 17, 1978, Amending Sections 30 and 53 of the National Internal Revenue Code of 1977 to Authorize the Secretary of Finance to Require Withholding of Creditable Income Taxes from Certain Income Payments and to Require Proof of Such Withholding as an Additional Condition for Deductions from Gross Income TO : All Internal Revenue Officers and Others Concerned For the information and guidance of all concerned, published hereunder is the full text of Presidential Decree No. 1351, viz.: aisa dc "MALACAANG Manila "PRESIDENTIAL DECREE NO. 1351 "AMENDING SECTIONS 30 AND 53 OF THE NATIONAL INTERNAL REVENUE CODE OF 1977 TO AUTHORIZE THE SECRETARY OF FINANCE TO REQUIRE WITHHOLDING OF CREDITABLE INCOME TAXES FROM CERTAIN INCOME PAYMENTS AND TO REQUIRE PROOF OF SUCH WITHHOLDING AS AN ADDITIONAL CONDITION FOR DEDUCTIONS FROM GROSS INCOME WHEREAS, the most convenient, effective and generally accepted method of collecting income taxes is through the withholding system; WHEREAS, in order to optimize the effectiveness of the present tax collection system, it is necessary to expand the coverage of the withholding system; WHEREAS, certain ordinary and necessary expenses and other items allowed as deductions constitute income to the recipients thereof and therefore includible in their gross income; WHEREAS, in order to insure the collection of the income tax on these income payments, it is necessary to subject such payments to the withholding of tax at source and to require proof of such withholding and payment to the BIR as a requirement for the deductibility of such payment; NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Republic of the Philippines, by virtue of powers vested in me by the Constitution, do hereby order and decree the following: Section 1. Section 53(f) of the National Internal Revenue Code of 1977 is hereby amended to read as follows: "(f) The Secretary of Finance may, upon recommendation of the Commissioner of Internal Revenue, require also the withholding of a tax on the same items of income payable to persons (natural or juridical) residing in the Philippines by the same persons mentioned in paragraph (b) (1) of this Section at the rate of not less than 2-1/2% but not more than 35% thereof which shall be credited against the income tax liability of the taxpayer for the taxable year." Section 2. Section 30 of the National Internal Revenue Code of 1977 is hereby amended by adding a new paragraph to read as follows: "(m) Additional requirement for deductibility of income payments . Any income payment which is otherwise deductible from gross income under this Section shall be allowed as a deduction only if it is shown that the tax required to be deducted and withheld therefrom has been paid to the Bureau of Internal Revenue in accordance with this Section, Section 54 and 93 of this Code." Section 3. This decree shall take effect immediately. DONE in the City of Manila, this 17th day of April, in the year of Our Lord nineteen hundred and seventy-eight. "(SGD.) FERDINAND E. MARCOS President "By the President: "(SGD.) JACOBO C. CLAVE Presidential Executive Assistant" Features of the Amendment 1. The amendment to Sec. 53(f) transfers the authority from the President to the Secretary of Finance, upon recommendation of the Commissioner of Internal Revenue, to require the withholding of creditable income tax from certain types of income payments to resident payees (natural or juridical) not presently covered by the withholding tax system. The withholding tax rate was likewise amended from 10% to a range from 2-1/2% to 35%. 2. The amendment to Sec. 30 provides for a self-enforcing feature of the withholding tax system, which requires proof of payment of the tax required to be deducted and withheld as an additional condition for deductibility to the payor of expenses which constitute income payments to the payee. Thus ordinary and necessary expenses paid or incurred in connection with trade or business or other compensation for personal services, rentals and other income payments including those on which withholding of tax is required under the authority of Sec. 53(f), as amended, will not be allowed as deductions to the payor even if such expenses meet the requirements of substantiation unless it is shown further that the withholding tax thereon has been paid to the Bureau. All internal revenue officers and others concerned with the enforcement of internal revenue laws are hereby enjoined to be guided accordingly and to give the decree a wide publicity as possible. aisa dc EFREN I. PLANA Acting Commissioner of Internal Revenue TAN-P4519-F2828-A-8