Late last year the tax authorities issued a notice to the public identifying the top withholding agents (TWAs) who are mandated to withhold expanded withholding tax (EWT) equivalent to one percent (1%) on purchase of goods and two percent (2%) on purchase of services from local or resident suppliers, including non-resident aliens engaged in trade or business in the Philippines.  The obligation to withhold applies on the TWAs’ income payments to “regular suppliers” which is defined under the rules as a supplier with whom the taxpayer has transacted at least six times, regardless of the amount per transaction.  Further, a single purchase which involves PHP10,000.00 or more shall be subject to the 1% or 2% EWT, as the case may be.

While this duty appears easy and straightforward, this is not always the case.  To illustrate, where a TWA is in urgent need of an office supply, for example bond paper, and sends its personnel to the nearest office supply store to procure the material, the TWA should keep track of how many transactions it had with the said office supply store because the moment it exceeds five (5), then the TWA should start withholding as required under the rules.  Then assuming the TWA is already on its 6^th transaction with the said office supply store, should it instruct its personnel who was sent to procure the office supply to withhold 1% and issue the Certificate of Creditable Tax Withheld at Source (BIR Form 2307) to the office supply store?  How about the parking fee, assuming there is one in the office supply store, which was paid by the personnel?

One can thus wonder if in case the amount of the purchase is minimal, for example PHP250.00 for the bond paper and PHP50.00 for the parking fee, if it is really worth all the trouble. 

Admittedly, there are ways that can serve as a remedy.  One suggestion is to use a company credit card for over-the-counter purchases because under existing revenue issuances, payments to credit card companies are not subject to EWT.  But then this remedy may not be feasible or practical to all TWAs.

One of the very first things I learned in taxation when I was still in school is the principle of administrative feasibility for a sound tax system.  Tax laws should be capable of being properly and efficiently administered by the government and enforced with the least inconvenience to the taxpayer.  This concept rings a bell whenever I encounter TWAs who are required to withhold 1% or 2% on their regular suppliers. 

Is it high time for the tax authorities to reconsider the definition of the term “regular suppliers” to make the withholding tax system not too burdensome or discouraging to business?  Clearly, the current threshold of six transactions regardless of the amount per transaction, or a single transaction amounting to at least PHP10,000.00, may no longer be practical considering the business demands and the prices of goods and services as of date. 

Notwithstanding the inconvenience, TWAs should keep in mind that in case of failure to withhold, they stand the risk of being assessed of deficiency EWT plus applicable penalties.  There is also that risk that the expense will be disallowed as a deduction from gross income for income tax purposes thereby resulting to an assessment for deficiency income tax plus applicable penalties.

_{Maria Paola G. Tavera is an Associate from the Tax Group of KPMG R.G. Manabat & Co. (KPMG RGM&Co.), the Philippine member firm of KPMG International. KPMG RGM&Co. has been recognized as a Tier 1 tax practice and Tier 1 transfer pricing practice by the International Tax Review.}

_{This article is for general information purposes only and should not be considered as professional advice to a specific issue or entity.}

_{The views and opinions expressed herein are those of the author and do not necessarily represent the views and opinions of KPMG International or KPMG RGM&Co. For comments or inquiries, please email ph-inquiry@kpmg.com or rgmanabat@kpmg.com.}