Withholding of Internal Revenue Taxes as Provided for in Republic Act No. 1051

November 17, 1954 REVENUE REGULATIONS NO. V-40 SUBJECT : Withholding of Internal Revenue Taxes as Provided for in Republic Act No. 1051 TO : All Internal Revenue Officers and Others Concerned SECTION 1. Scope. Pursuant to Section 3 of Republic Act No. 1051, the following regulations relative to the deduction and withholding from any money payment to private individuals, corporations, partnerships, and/or associations, any and all internal revenue taxes due and payable on account of said money payment on transactions made with any bureau, office, agency or instrumentality of the Government are hereby promulgated: "All bureaus, offices, agencies and instrumentalities of the government, including government owned or controlled corporations, provinces, cities and municipalities shall, before making any money payment to private individuals, corporations, partnerships and/or associations, deduct and withhold any and all taxes the amount of which can be fixed, determined, computed or ascertained, due from such individuals, corporations, partnerships and/or associations on account of said money payment: Provided, however, That the deductions and withholdings referred to herein shall not be required in case previous payments of the aforesaid tax liability or liabilities had already been made by the corresponding payee." (Sec. 1, R. A. 1051) SECTION 2. Entities Required to Deduct and Withhold. Only government bureaus, offices and instrumentalities, government owned or controlled corporations, provinces, cities and municipalities are required to deduct and withhold the taxes before making any money payment to any private individual, corporation, partnership or association. The private individuals, corporations, partnerships and associations referred to above are those entities who have transactions with the Philippine Government, or any of its branches or agencies either as contractors, dealers or suppliers that have rendered services or sold materials, wares or merchandise and such payment is in consideration for services rendered or for materials, wares or merchandise sold. The internal revenue taxes due from such contractors, dealers or suppliers shall be deducted and withheld from the money to be paid by the government to said contractors, dealers or suppliers on account of such transactions, provided such taxes can be fixed, determined, computed or ascertained on account of the money payment. The withholding of the tax as required herein should be made by the disbursing officer or any officer authorized to make payments or disburse the funds of any government bureau, office, agency or instrumentality of the government including government owned or controlled corporation, province, city and municipality. In case, however, the internal revenue tax on the transaction has been paid, no withholding should be made but the officer concerned should certify in his official capacity on the corresponding voucher, stub, or receipt of such disbursement the number, date, amount and place of issue of the receipt covering the payment of such tax. SECTION 3. Internal Revenue Taxes that Can Be Withheld. Under the National Internal Revenue Code, the following internal revenue taxes can be fixed, determined and computed at the time of payment: (a) Sales tax due from local producers prescribed in Sections 184, 185 and 186 of the Tax Code; aSTAHD (b) Percentage tax due from proprietors or operators of (1) rope factories, (2) sugar centrals, (3) rice mills, (4) coconut oil mills, (5) corn mills, and (6) desiccated coconut factories (Sec. 189, National Internal Revenue Code); (c) Percentage tax due from contractors: (1) Warehousemen; (2) Artesian well contractors; (3) Building contractors; (4) Filling contractors; (5) Irrigation contractors; (6) Other construction work contractors; (7) Road contractors; (8) Water-works contractors; (9) Dressmakers or milliners; (10) Hatters; (11) House or sign painters; (12) Keepers of restaurants; (13) Keepers of bars and cafes where wines or liquors are served 5%; (14) Keepers of hotels or lodging houses; (15) Lithographers; (16) Beauty parlors; (17) Persons engaging in the installation of electric light, heat or power; (18) Gas; (19) Persons selling light, heat or power (except those paying franchise tax); (20) Plumbers; (21) Printers; (22) Broadcasting or wireless stations; (23) Dockyards; (24) Drycleaning or dyeing establishments; (25) Funeral parlors (including service); (26) Engraving plants; (27) Mine drilling apparatus; (28) Plating establishments; ADHCSE (29) Photographic studies; (30) Smelting plants; (31) Steam laundries; (32) Telegraph or telephone lines or exchanges; (33) Publishers; SHOPS FOR THE CONSTRUCTION OR REPAIR OF: (34) Apparatus; (35) Bicycles or vehicles of any kind; (36) Furniture of any kind; (37) Instruments; (38) Mechanical devices; (39) Smiths; (40) Stevedores; (41) Tailor shops; (42) Warehousemen; (Sec. 191 Idem.) (d) Percentage tax on carriers and transportation contractors imposed by Section 192 of the Tax Code; (Sec. 192, Idem.) (e) Charge on forest products sold and delivered to the government by the forest concessionaires thereof without the corresponding forest charges due thereon paid at the time of the removal of the same from the forest; (Title VIII, Chapter V, Idem.) (f) Franchise tax due from holders of franchise selling light, heat or power or as common carrier and transportation contractor. In this case, the rate of tax shall be that fixed in their respective franchises or 5% of gross receipts; (Sec. 259, Idem.) (g) Ad valorem tax on minerals and mineral products; (Title VIII, Chapter VII, Idem.) SECTION 4. (a) Sales Tax Due From Local Producers. This tax is 7% of the gross sales of articles classified as ordinary under Section 186 of the National Internal Revenue Code. As in most instances producers are not manufacturers who are allowed to deduct the cost of raw materials used from the gross sales for purposes of the sales tax, these producers are invariably subject to 7% sales tax on their gross sales of ordinary articles produced by them and sold to the government and its agencies including government owned or controlled corporations. The tax, therefore is easily determined as the total sales value of the materials, goods, wares or merchandise sold and supplied by the producers thereof, is subject to 7% sales tax. cASTED (b) Percentage Tax Due from Proprietors or Operators of Rope Factories, etc. This tax is 2% of the selling price or market value of the rope, sugar, rice, coconut oil, corn and desiccated coconut at the time such products leave the mill or mill warehouse imposed in Section 189 of the National Internal Revenue Code. (c) Percentage Tax Due from Road, Building, Irrigation, Artesian Well, Water Works and Other Construction Work, Contractors, etc. This tax is 3% of the gross receipts of the contractors enumerated in Section 191 of the Tax Code. As the basis of the tax is the amount paid and received by such contractors whether in cash or its equivalent, the total amount so received is subject to tax without any benefit of deduction. (d) Percentage Tax on Carriers and Transportation Contractors. This tax is 2% of the gross receipts of common carriers and transportation contractors by land, air or water except owners of bancas and animal-drawn two-wheeled vehicles as provided for in Section 192 of the Tax Code. Like contractors, the basis of the tax is the amount paid and received by the common carrier or transportation contractor whether in cash or its equivalent. If the transportation of passenger or freight is effected for the government, its agencies and instrumentalities including government-owned or controlled corporations, by the owners or operators of bancas, or small watercraft or animal-drawn two wheeled vehicles no withholding of tax should be made as they are expressly exempted by law. (e) Charges on Forest Products. These charges are due on all forest products which should be paid by the forest concessionaire. They vary according to the group, or class the forest products belong. In the case of timber cut from public forests, the charges due thereon as prescribed in Section 264 of the Tax Code are as follows: 1. On ebony stripped of sapwood P26.00 per cu. m; 2. On camagon stripped of sapwood P5.00 per cu. m; 3. On molave stripped of sapwood P4.00 per cu. m; 4. On timber of first group except those above P3.00 per cu.m; 5. On timber in second group P2.00 per cu.m; 6. On timber in third (not including firewood) P1.25 per cu.m; 7. On timber in fourth group (not including firewood) P0.60 per cu.m; Forest charges on other forest products as well as those classified as minor forest products may be found in the List of Administrative Schedules and Forest Products Regulations issued by the Secretary of Finance. (f) The franchise tax is a certain percentage of the gross receipts of the holder or grantee thereof as prescribed in the law granting the franchise. In case the grant of the franchise does not specify the rate of tax due, the provisions of Section 259 of the Tax Code should be enforced and this requires the payment of 5% of the gross receipts of the grantee. As the basis of the tax is the amount paid and received by the grantee whether in cash or its equivalent the total amount so received is subject to tax without any deduction. (g) Ad Valorem Taxes on Minerals and Mineral Products. This tax is 12% of the actual market value of the gross output of the mines or gross value of the minerals or mineral products produced or extracted from mineral lands except coal which is subject to tax at the rate of not less than P0.10 per ton as may be specified in the lease and to the specific tax of P0.25 per ton. (Secs. 243 as amended by Republic Act No. 909; 242 and 143 all of the Tax Code) SECTION 5. Exemptions. (a) Only the taxes mentioned above shall be withheld by the paying officer of the government and its agencies and instrumentalities including government owned or controlled corporations. Merchants or suppliers who are not subject to tax mentioned in the preceding Sections 3 and 4 hereof may be paid in full of the value of the goods, wares, merchandise or services sold and supplied by them to the government without being subject to the withholding tax prescribed in Republic Act 1051. HCTDIS (b) Local producers, contractors, common carriers, transportation contractors and others, however, who are subject to the withholding provisions of these regulations may be exempted from the requirements of Section 2 hereof when, for any single transaction, the value of the articles supplied and/or services rendered to the government does not exceed P100.00. "It shall be unlawful for any public officer or employee or official or employee of a government owned or controlled corporation to authorize any of the payments mentioned in section one hereof without withholding, or without requiring the previous payments of the tax liability mentioned in section two hereof. It shall be equally unlawful for any person or persons to induce or connive with any public officer or employee, or official or employee to commit the unlawful act herein defined or to receive any payment in violation of this Act." SECTION 6. Acts Constituting Violation. The unlawful acts defined above may be committed by the public officer or employee, or official or employee of a government owned or controlled corporation when he fails to withhold the tax before making any money payment, or by any private person if he connives with any public officer or employee, or official or employee of a government owned or controlled corporation in the commission of the unlawful act defined in this law or if he receives any payment in violation of said Act. Any withholding officer who is in doubt as to the rate and amount of tax to be withheld shall notify the nearest internal revenue officer who shall make the necessary assessment of the tax to be withheld. SECTION 7. Duties of the Withholding Officer. Amounts withheld pursuant to these regulations by any government office or by government owned or controlled corporation shall be remitted to the city or municipal treasurer who shall issue an official receipt therefor, and such remittances shall be reported as internal revenue collections. In all cases, the receipt should be in the name of the taxpayer from whom the tax has been withheld and the kind and nature of the tax and the period covered by the payment should be shown thereon. "Any violation of this Act shall be punished by a fine not less than one thousand pesos nor more than two thousand pesos and imprisonment for not more than one year: Provided, That in the case of a public officer or employee, he shall be further subject to administrative proceedings and if found guilty, shall be dismissed from the service: Provided, further, That in case of aliens, in addition to the penalties provided for in this section, they shall be deported without further deportation proceedings." (Sec. 5, Republic Act No. 1051.) SECTION 8. Penalties for Violations. The penalties imposed for the violation of the provisions of this Act are both fine of not less than P1,000.00 and imprisonment for not more than one year. If a public officer or employee, or official or employee of a government owned or controlled corporation commits the unlawful act, the additional penalty of dismissal from the service is imposed, and if committed by aliens, they shall be deported without further deportation proceedings. These regulations shall take effect upon their promulgation in the Official Gazette. (SGD.) JAIME HERNANDEZ Secretary of Finance Recommended by: (SGD.) J. ANTONIO ARANETA Acting Collector of Internal Revenue