Withholding Tax Rules under Ease of Paying Taxes Act (EOPT)
By: Atty. Mabel L. Buted
"The EOPT introduced a new provision in the Tax Code that explicitly defines the rule on the timing of withholding of taxes on income payments. As modified, the tax law provides that the obligation to deduct and withhold the tax arises at the time the income has become payable. Implementing this is RR No. 4-2024, which interprets the term “payable” in the same way as RR No. 02-98 did. It is provided in RR No. 04-2024 that an income becomes payable when the obligation becomes due, demandable, or legally enforceable. However, as to the point in time for the withholding of the tax, the said RR requires the payor to withhold “at the time an income payment is accrued or recorded as an expense or asset, whichever is applicable, in the payor’s books, or upon the issuance by the seller of the sales invoice or other adequate document to support such payable, whichever comes first.”"
 Mabel L. Buted +632 8403-2001 loc.160 |
I have previously written in this column about the new processes, procedures, and requirements related to the claim for refund of excess and unutilized creditable withholding taxes, as modified by the Ease of Paying Taxes (“EOPT”) Act. Other than these, there are also other changes introduced under the EOPT involving the withholding of taxes that taxpayers must be aware of. One of these pertains to the rule on the timing of withholding of taxes.
Before the EOPT, the rule on the timing for the withholding of taxes was not specifically provided in the Tax Code itself. This was supplied by revenue regulations and other revenue issuances, specifically RR No. 02-98 and its predecessors. Under RR No. 02-98, the withholding agent must deduct and withhold the tax at the time an income payment is paid or payable, or the income payment is accrued or recorded as an expense or asset in the books, whichever comes first. Further, the term “payable” was defined in the revenue regulations as referring to the date the obligation becomes due, demandable, or legally enforceable.
The EOPT introduced a new provision in the Tax Code that explicitly defines the rule on the timing of withholding of taxes on income payments. As modified, the tax law provides that the obligation to deduct and withhold the tax arises at the time the income has become payable. Implementing this is RR No. 4-2024, which interprets the term “payable” in the same way as RR No. 02-98 did. It is provided in RR No. 04-2024 that an income becomes payable when the obligation becomes due, demandable, or legally enforceable. However, as to the point in time for the withholding of the tax, the said RR requires the payor to withhold “at the time an income payment is accrued or recorded as an expense or asset, whichever is applicable, in the payor’s books, or upon the issuance by the seller of the sales invoice or other adequate document to support such payable, whichever comes first.”
It can be gleaned that RR No.4-2024 deleted the phrase “at the time an income payment is paid or payable” and replaced it with another event, that is, at the time of the issuance by the seller of the sales invoice or other adequate document to support such payable.
The withholding tax rule as implemented by RR 4-2024 leaves me thinking about many questions regarding the supposed change made under the EOPT and how it is being implemented. What is the difference between the withholding tax rules before and after EOPT?
With the exclusion of the phrase “at the time an income payment is paid or payable” by RR No. 4-2024, does this mean that the withholding of tax on advance payments of income is dispensed with and the duty to withhold is triggered only when the expenses are eventually incurred? Are prepaid expenses or advances within the contemplation of the word “asset” in the phrase “at the time an income payment is accrued or recorded as an expense or asset”?
Similarly, are mere accruals subject to withholding tax even if no billing has been issued yet by the income earner or service provider? In accounting, accrued expense refers to costs or expenses that are already incurred but remain unpaid as of specific time. Usually, at year-end, taxpayers record expenses to reflect the costs and expenses incurred during the period, even if the purchases remain unpaid. These are reflected in the financial statements. And this can be done even before the payor receives the actual copy of the invoice or billing statement, provided that the expense has actually been incurred. This is allowed following generally accepted accounting principles so that companies and entities can fairly present their financial performance and the results of their operations during the taxable year. However, depending on the arrangement of the parties, the income payment may not yet be due and payable or legally enforceable and demandable at the same time these expenses are accrued.
These are just a few of the questions related to withholding tax, specifically on the timing for withholding and remittance. With all these questions, I hope that our concerned authorities can provide further clarifications to guide taxpayers in properly complying with their withholding tax obligations.
The author is a partner of Du-Baladad and Associates Law Offices (BDB Law), a member-firm of WTS Global.
The article is for general information only and is not intended, nor should be construed as a substitute for tax, legal or financial advice on any specific matter. Applicability of this article to any actual or particular tax or legal issue should be supported therefore by a professional study or advice. If you have any comments or questions concerning the article, you may e-mail the author at This email address is being protected from spambots. You need JavaScript enabled to view it. or call 8403-2001 local 160.