The Bureau of Internal Revenue has announced that gross payments made by top withholding agents to manufacturers or direct importers for covered goods intended for wholesale are subject to a preferential 0.5% creditable withholding tax. This clarification aims to promote uniform implementation of tax regulations and provide guidance to withholding agents and taxpayers. The new guidance seeks to ensure the proper application of withholding tax rules in covered transactions. The announcement was made through Revenue Memorandum Circular No. 79-2026.
The 0.5% creditable withholding tax rate applies to purchases of covered goods from suppliers who are either manufacturers or direct importers of these goods. The supplier does not need to be both a manufacturer and a direct importer to qualify for the preferential rate. Local manufacturers and direct importers who sell covered goods for wholesale may qualify for this rate, regardless of whether the goods are produced locally or imported.
The controlling factor in determining the applicability of the 0.5% rate is the status and regular course of business of the seller as a manufacturer or direct importer engaged primarily in wholesale transactions. This means that the purpose for which the buyer acquires the goods is not the determining factor. The 0.5% rate may still apply when a top withholding agent purchases covered goods for its own use or consumption rather than for resale.
The Bureau of Internal Revenue has also provided clarification on specific types of goods that may be subject to the 0.5% rate. Motorcycles are considered motor vehicles, while vehicles imported or manufactured in completely knocked down condition fall under motor vehicle parts and accessories. Pharmaceutical products are only covered by the preferential rate if they are classified and regulated by the Food and Drug Administration.
In cases where a top withholding agent discovers that it used the wrong rate, it must adjust the amount withheld and reflect the correct rate in its Quarterly Remittance Return of Creditable Income Taxes Withheld. The correction must be made within the same taxable year to ensure compliance with tax regulations.
