Dissemination of CTRP-ITS Enhancements to all Revenue District Offices

March 23, 1998 REVENUE MEMORANDUM ORDER NO. 29-98 SUBJECT : Dissemination of CTRP-ITS Enhancements to all Revenue District Offices TO : All Internal Revenue Officers and Others Concerned I. OBJECTIVES The Bureau has recently determined enhancements to the Integrated Tax System, given the passage of the Comprehensive Tax Reform Package (CTRP) under RA 8424 (also known as the Tax Reform Act of 1997). An initial set of enhancements was released through the Memoranda dated March 3 and 4, 1998 to the Heads of the various Revenue Data Centers. prLL In this respect, and in line with the release of the second set of CTRP enhancements, this Order is being issued for the following purposes: 1. To inform all internal revenue officials and employees, and others concerned, of the scope and schedule of the second, release of CTRP enhancements; and 2. To provide for the dissemination of such enhancements to all concerned revenue personnel and taxpayers at the Bureau's various Revenue District Offices. II. POLICIES AND GUIDELINES A. Scope of Enhancements 1. The second set of CTRP enhancements shall be released to all Revenue District Offices on March 31, 1998. These enhancements shall have a direct effect on BIR Forms 1601/1743W (Monthly Remittance of Income Taxes Withheld) 2. The details of the various enhancements are as follows: 2.1. Tax on Fringe Benefits and Royalties A thirty-four percent (34%) final tax has been imposed under the CTRP on the grossed-up monetary value of fringe benefits granted to employees other than rank-and-file personnel, for taxable year 1998. In addition, while other royalties remain taxable at twenty percent (20%) [for both individuals (except for non-resident aliens who are not taxable) and non-individuals], a separate ten percent (10%) final tax (for individuals only) has been imposed on royalties on books, literary works, and musical compositions. SUBJECT TO FINAL WITH- OLD NEW ATC CTRP HOLDING TAX TAX TAX CODE REFERENCE RATE RATE On fringe benefits None 34% WI360 Section 33(a) On royalties on books, 20% 10% WI380 Section 24 literary works and musical (B) (1) compositions The ATC Codes WI360 and WI380 are new ATC Codes. A new CTRP-enhanced version of Form 1601, which shall incorporate these new codes, shall be issued at a later date. In the interim, a List of ATC Codes and their corresponding tax rates is attached as Annex A of this Order. 2.2. Tax on Dividends Paid To Individuals Based on Section 24 (B) (2) of RA 8424, a final tax is imposed on cash dividends and property dividends, beginning January 1, 1998, and shall be imposed at the following rate schedule: SUBJECT TO FINAL TAX OLD NEW ATC CTRP ON DIVIDENDS TAX TAX CODE REFERENCE RATE RATE On Cash Dividends WI390 Section 24 Begin. Jan. 1, 1998 None 6% (B) (2) Begin. Jan. 1, 1999 None 8% Begin. Jan. 1, 2000 None 10% On Property Dividends WI400 Section 24 Begin. Jan. 1, 1998 None 6% (B) (2) Begin. Jan. 1, 1999 None 8% Begin. Jan. 1, 2000 None 10% 2.2.1. No old tax rates have been provided inasmuch as dividends were not subdivided into cash dividends and property dividends prior to the passage of RA 8424. 2.2.2. The tax on dividends shall apply only on income earned on or after January 1, 1998. Income forming part of retained earnings as of December 31, 1997 shall not, even if declared or distributed on or after January 1, 1998, be subject to tax. The applicable ATC Code for such income shall still be WI200, with a corresponding tax rate of zero percent (0%). LLphil 2.3. Tax on Non-Resident Aliens. SUBJECT TO FINAL WITH- OLD NEW ATC CTRP HOLDING TAX TAX TAX CODE REFERENCE RATE RATE On Non-Resident Aliens 30% 20% WI250 Section 25(a) engaged in trade or WI260 business (ETB) * On Non-Resident Aliens 30% 25% WI330 Section 25(b) not engaged in trade or business * Except on royalties on books, literary works, and musical compositions, for which the new tax rate would be ten percent (10%). 2.4. Tax on Informer's Rewards. Pursuant to Section 282 of RA 8424, a ten percent (10%) final withholding tax is imposed on informer's rewards granted to persons instrumental in the discovery of violations of the National Internal Revenue Code, and in the discovery and seizure of smuggled goods. SUBJECT TO FINAL WITH- OLD NEW ATC CTRP HOLDING TAX TAX TAX CODE REFERENCE RATE RATE Informer's Reward 10% WI410 Section 282 WC410 2.5. Changes in Tax Base for Exemptions of Prizes 2.5.1. Pursuant to Section 25 (a) (2) of RA 8424, the amount for exemptions from final tax on prizes has been raised from THREE THOUSAND PESOS (P3,000) to TEN THOUSAND PESOS (P10,000). 2.5.2. Prizes above P10,000 shall be considered as taxable, in their entirety, at the tax rate of twenty percent (20%) which rate remains unchanged. PCSO and Lotto prizes, however, shall continue to be tax exempt. B. Guidelines on Dissemination of Information on Enhancements To facilitate the efficient and effective dissemination of information on the ITS enhancements in response to the CTRP, the following guidelines are hereby established: 1. All Revenue District Officers shall be held directly responsible for ensuring that the Revenue Officers under their respective jurisdictions are clearly and thoroughly informed of the changes brought about by the passage of the CTRP, and their corresponding enhancements, specifically with regard to BIR Form 1601/1743W. 2. The Revenue District Officers shall be responsible for the reproduction and immediate distribution of the List of ATC Codes affecting BIR Form 1601/1743W to all concerned taxpayers in their respective Districts. prcd 3. The Bankers Association of the Philippines (BAP) shall be requested to disseminate information related to the CTRP to their member-banks. 4. All Revenue District Officers must conduct briefings on the enhancements set forth in this Order, at their respective Districts. These briefings must be completed on or before April 6, 1998. III. EFFECTIVITY This Order shall take effect immediately. LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue ANNEX A LISTING OF ATC CODES AT BIR FORM #1743W AND #1601 BASED ON CTRP