Withholding tax in the Philippines is the amount that a withholding agent keeps with them, and these taxes are paid directly to the Bureau of Internal Revenue. These could be taxes on compensation made to employees. On the other hand, large corporations act as withholding agents for payments to their suppliers and vendors, called expanded withholding taxes.
Simply put, this means that as a withholding agent, you need to hold on to some amounts that you pay to your employees or supplier and vendors. This is a withholding tax paid directly to the Philippine government, specifically to the bureau of internal revenue.
This percentage of withholding tax is determined by the nature of your recipient’s business. Each similar type of business has an alphabetic tax code and the same rate for each.
Therefore, there are two types of withholdings at the source. Compensation tax withholding is when corporations withhold a portion of their employees’ compensation as part of tax payments made to the BIR.
Alternatively, the expanded withholding taxes or the withholding tax on payments is the amount withheld from vendors and suppliers before they are paid.
The benefit of withholding taxes is that the government is never short of funds to conduct development activities. Since the income tax is payable quarterly and annually, there could be a shortage of funds without the withholding taxes.
Even though it is reasonably easy to understand the concept of the withholding tax system, the process of submission is much more complicated. You need to furnish many forms and lists as proof of payment during your income tax filing.
The form BIR 2307 is also called a certificate of creditable tax withholding at source. This certificate shows the withholding taxes paid by the agent. You can download a copy of the form from the official website of BIR.
Filling out the form is simple; however, you need to get details about the taxpayers, including their name, Taxpayer Identification Number, address, zip code, etc. Then print two copies and sign both and also have the payee sign both documents as well. You should keep your copy for your records.
Next is forming 0619E, Income tax withheld monthly remittances. It is a form in which you have summarized all the taxes you have collected in the previous month.
Next is forming 1601EQ, submitted every three months starting from January, April, July, and October. Each form is for the previous quarter. It is the same as the 0619E form but furnishes more details.
The Quarterly Alphalist of Payees lists taxpayers you have withheld taxes for and their names, taxpayer identification numbers, payment date, how much was withheld, and their alphanumeric tax codes. If you want to submit it manually, this is a list that you can create in Excel or Word.