RMC No. 130-2016: Clarifies the tax treatment and appropriate Withholding Taxes on income payments by Departments and Agencies of the Government, including Government-Owned and/or -Controlled Corporations and Government Financial Institutions to individuals engaged under a job order or contract of service arrangement

Key points

1. Professionals. Professionals paid for their services are subject to withholding tax of 10% or 15%, whichever applies, on gross professional fees under Section 2.57.2(A) of RR No. 2-98, as amended. The rate is 15% if gross income for the current year exceeds P 720,000, and 10% if otherwise. The base includes fees, per diems, allowances and other income payments not subject to withholding tax on compensation.
2. Non-professionals. Payments to non-professionals under a Contract for Service or Job Order are not subject to the creditable withholding tax rates of Section 2.57.2 of RR No. 2-98, as amended. They are reported as income subject to Income Tax under Section 24 of the Tax Code of 1997, as amended, in relation to Section 51.
3. VAT on Job Order personnel. Job Order personnel have no employer-employee relationship, so their services are subject to Value-Added Tax. Section 109(1)(W) of the Tax Code exempts annual gross receipts not exceeding One Million Nine Hundred Nineteen Thousand Five Hundred Pesos (P1,919,500.00). The amount is adjusted every three (3) years using the Consumer Price Index, through a Revenue Regulations issued not later than March 31 of each year.
4. Threshold rules. Husband and wife are separate taxpayers for the P1,919,500.00 threshold. Each taxpayer’s revenue from other VAT-subject lines of business is combined with professional receipts, but VAT-exempt sales are not counted.
5. 3% percentage tax. A person exempt under Section 109(1)(W) who is not VAT-registered pays tax of Three Percent (3%) of gross quarterly sales or receipts. Non-VAT-registered persons whose gross annual sales or receipts do not exceed P 1,919,500.00 are subject to Percentage Tax, with the same three-year adjustment.
6. Government withholding of Percentage Tax. Government bureaus, offices, instrumentalities, GOCCs, their subsidiaries, provinces, cities and municipalities making money payments to private individuals, corporations, partnerships or associations must deduct and withhold Percentage Tax at 3% from the payees.

Who is affected

• Individuals engaged under Job Order or Contract of Service with government
• Government departments, agencies, GOCCs and Government Financial Institutions

Deadlines and effectivity

• Gross income threshold for 15% rate: exceeds P 720,000 for the current year
• VAT exemption threshold adjusted every three (3) years, adjustment published by March 31 of each year