QuestionsQuestions (BIR REVENUE MEMORANDUM CIRCULAR NO. 35-91)
All sales, exchanges, or transfers of motor vehicles—whether brand new or second hand—on or after June 1, 1991, including transactions between two individuals not engaged in trade or business, are covered, except those specifically exempted.
Coverage starts on June 1, 1991.
A 2% creditable income tax withholding on the gross selling price or total amount of consideration (or its equivalent) paid or payable for the sale/exchange/transfer of motor vehicles prior to registration by the LTO.
It becomes 1% for motor vehicles considered “brand new” when sold, exchanged, or transferred by persons participating in the government Car Development Program (CDP) or Commercial Vehicle Development Program (CVDP).
Among others: (1) motor vehicle sold/exchanged/transferred for P50,000 or less where the model is 1978 or earlier (both must be satisfied); (2) motorcycles and similar vehicles; and (3) sales by manufacturers participating in CDP/CVDP to their franchised dealers (but not to persons other than franchised dealers).
Because such sales are exempt from the creditable withholding tax; however, when the vehicle is sold to someone other than the franchised dealer, the transaction becomes subject to withholding.
Withholding tax applies only to the transactions occurring on or after June 1, 1991. In the illustration, only the sale by D to E in June 15, 1991 is subject to withholding because it is the first post-effectivity taxable sale.
No withholding if the “assembler” merely assembles parts for a fee and the assembly is done by order of the owner (no sale of the motor vehicle occurs). Withholding applies if the assembler supplies all materials and labor, since that constitutes a sale of the motor vehicle.
No. The circular states that a donation is not subject to the creditable withholding tax (though it remains subject to donor’s tax).
The fair market value of the vehicles at the time of the exchange is used as the basis for the 1% or 2% withholding.
No. The withholding tax is based on the gross selling price (or total consideration) without deducting discounts or price adjustments.
No. The VAT passed on by the seller to the buyer (whether separately stated or not) does not form part of the withholding tax base.
The consideration stated in the sales documents or the official Schedule of Values of Motor Vehicles—whichever is higher.
It must be deducted and withheld at the time the income payment is paid or payable, and remitted to the BIR within ten (10) days after the end of the month.
BIR Form 1743W is used as evidence (Confirmation/Official Receipts) of withholding paid, and BIR Form 1743.1 is issued to the seller as the Certificate of Income Tax Withheld At Source.
General rule: file with the Revenue District Officer where the withholding agent’s principal place of business is located. Exception: for purposes of RR 2-91, the withholding agent may file and pay where the motor vehicle is or shall be registered.
The LTO shall not register the sale/transfer/exchange of a motor vehicle without a CAR indicating the Payment Order/Confirmation Receipt or Official Receipt number, payment date, and amount of creditable withholding tax issued by the proper Revenue District Officer, unless the CAR indicates the transaction is exempt.