Form 1601EQ: Role of Top Withholding Agents

Intending to simplify tax collection and the tax withholding system, the Internal Revenue Bureau of Philippines issued a notification letter to the public on October 8, 2018. To guide the tax-paying public, the BIR presented a list of Top Withholding Agents (TWA), which falls under the jurisdiction of the large taxpayer services and revenue locations, by listing the existing, new, and delisted withholding agents from the current list.

Under RR 11-2018, it is recommended that a newly identified TWA charge 1 percent on purchases of goods and 2 percent on purchases of services from local/residential providers, which will also include nonresident aliens who are involved in business in the Philippines.

To be clear, the term "goods" refers to tangible personal property. It does not include ethereal personal property or agricultural products as defined in Section 2 of RR No. 2-1998. Additionally, the term "local residential supplier of goods/services" means supplier from whom Top Withholding Agents purchases goods/services regularly.

A regular provider means that the taxpayer has made transactions at least six times, regardless of the amount of each transaction. As a general rule, the term does not include occasional purchases of goods/services from a non-regular supplier and mostly meaning one purchase. However, a single purchase involving P10,000 or more will qualify for withholding tax.

Another important thing for a TWA to consider is that the 1 and 2 percent withholding tax is only included in transactions that are not covered by other withholding tax rates as per section 2.57.2 of RR No. 2-1998.

For example, office space lease payments will continue to be subject to the 5 percent withholding tax applicable on rent, contrary to the 2 percent withheld tax applied for regular suppliers.

Indifference, the utility payment that is not expressly subject to the withholding tax under the rules and regulations will be subject to the 2 percent withholding tax as a regular purchase of services through a TWA. The withheld taxes will be reported on a monthly and quarterly basis according to two BIR forms, 0619-E and 1601EQ, respectively.

The Top Withholding Agents also have to furnish a list of regular suppliers of goods and services before July 31 (for the first semester) and on or before January 31 (for the second semester) each year in a CD or electronically to the RDO.

In addition to meeting reporting requirements, what is essential is that BIR relies on the TWA to ensure efficient tax collection on a monthly and quarterly basis to meet the needs of the government budget.

The new guidelines place additional responsibilities on these newly added Top Withholding Agents to act as outreach offices for tax collection. The challenge is how to effectively and efficiently consolidate in support of BIR's revenue targets.

Although the new guideline transfers responsibility to TWAs, it allows them to maximize their benefits to society as a whole as the policy change is in the public interest.