Government to Start Imposing Withholding Tax on Joint Ventures in the Philippines
According to the Bureau of Internal Revenue (BIR), the government will begin to charge withholding tax on certain earnings made by joint ventures and consortia to their suppliers.
Revenue Regulations (RR) No. 14-2023, dated October 2, imposed a 1% creditable withholding tax on payments made by these enterprises to their local suppliers of goods. A 2% withholding tax will be levied on payments made to service providers.
Meanwhile, the BIR stated that a 15% creditable withholding tax would be charged to each joint venture member or consortium’s portion of the company’s net revenue.
Creditable withholding taxes are advance taxes collected at the source. This enables the BIR to collect taxes prior to the yearly tax filing date.
The most recent regulation revised the 25-year-old RR No. 2-98 by adding additional items to Section 2.57.2. The new RR will take effect 15 days after it is published in a general circulation newspaper in the Philippines.
When asked for comment, Eleanor Roque, P&A Grant Thornton’s tax advice head, stated the new regulations would make it easier for the BIR to tax suppliers’ income.
Roque noted, “It allows the BIR to easily capture income of the suppliers since the alphalist (alphabetical list) submitted by the withholding agents can be compared with the alphalist submitted by the suppliers through data matching.”
An Alphalist is a list filed to the BIR by a payee that shows, among other things, the type and amount of income paid to a recipient.
According to Roque, joint ventures and consortia, as withholding agents, may easily comply with the new laws since they simply compute the withholding tax to be withheld from their payments to suppliers and return the money to BIR.
However, Roque stated that the sum withheld in the payment of products and services represented cash that could have circulated in the business of the suppliers.