Understanding Types of Withholding Taxes in Philippines

Credible at source, withholding tax or simply called extended withholding tax, applies to income tax payable by people living in the Philippines, which is paid by the withholding corporation or individual, credited against the income tax liability of the taxpayer for the taxable year

The amount of the income tax withheld by the agent is constituted as the total and definitive payment of the income tax of the payer of said income.

It is the responsibility of the withholding agent to pay the tax. In case of non-compliance with the holding tax or insufficient withholding, the balance will be recovered from the paying agent/withholding agent. The payer is not required to file an income tax return for this particular income.

The withholding tax system is considered an effective means of tax collection as it encourages voluntary compliance and reduces the cost of collection efforts.

It also prevents revenue loss and corruption and prevents drought in the government's financial position as taxes are paid to the government throughout the year instead of quarterly and annual payments.

Now that we understand what a withholding tax is, we also need to know who should withhold these taxes. People who are in business or in a profession will have to withhold taxes.

Likewise, for non-individual entities such as corporations, associations, partnerships, cooperatives, etc., regardless of whether or not they engage in business activity, the tax must be withheld.

Government agencies, government-owned and controlled corporations, local government units, etc. are all responsible for tax withholding.

The withholding agent can be any person or entity that controls the payment that is subject to the withholding tax and therefore has been ordered to deduct and submit the tax to the government.

Let's now look at the classification of withholding taxes. Under credible withholding tax, you have compensation withholding tax, which is a tax withheld from employees' wages by the employer.

Extended Withholding Tax or EWT is a type of withholding tax that is proposed on certain income payments. This is creditable against income tax as the taxable tax was paid in advance for the quarter/year in which the specified income was earned.

The GMP withholding tax or value-added tax is a tax that is withheld by national government agencies and resources, including government-owned and controlled corporations and local government units before they can provide payments to VAT-registered taxpayers for purchasing their goods and services.

The withholding tax or percentage tax on government payments is a tax that national government agencies (and instruments including government-owned and controlled corporations, as well as units of local government) levy on taxpayers who do not are registered as VAT.

Next, the final withholding tax is a type of withholding tax that applies to certain payments of income. This is not creditable because the payee does not have to pay income tax.

To deal with the filing of taxes, you can either visit a local BIR office or use the eBIR or the electronic filing system of the bureau of internal revenue. There is much less hassle and time wastage by filling BIR forms online as you do not have to travel or stand in long queues.