Question & AnswerQ&A (REVENUE MEMORANDUM CIRCULAR NO. 51-2002, NOVEMBER 51, 2002)
The main purpose of Revenue Memorandum Circular No. 51-2002 is to clarify that the imposition of the final withholding tax on certain income does not exempt the income recipient from paying the percentage tax on the same income, and to clarify the tax base for the gross receipts tax under Sections 121 and 122 of the Tax Code.
The final withholding tax is only final in relation to the income tax liability of the recipient on the particular income. It is a procedure to collect income tax from that income and does not cover other tax liabilities such as percentage tax.
Yes. Income subjected to final withholding tax is still subject to percentage tax if applicable, as the final withholding tax does not relieve the income from other tax liabilities.
The gross receipts tax base includes the amount of income actually or constructively received, meaning the gross amount of income inclusive of the final withholding tax withheld, following the doctrine of constructive receipt.
An example given is that a bank or finance company earning interest income from government securities subjected to 20% final withholding tax must use the gross amount of interest without deducting the withholding tax as the basis for the gross receipts tax.
Constructive receipt means that income is considered received by the income earner not only when received in cash but also when the amount withheld as final withholding tax is considered part of the gross income for gross receipts tax purposes.
No. The final withholding tax only covers the income tax liability on the specific income and does not exempt the income from percentage tax or other tax liabilities.
Once the payer withholds and remits the final withholding tax, the income recipient does not need to declare the income again in their income tax returns or pay further income tax on that income, but the payee remains liable for percentage tax if applicable.
Sections 121 and 122 of the Philippine Tax Code are referenced regarding the imposition of the gross receipts tax and percentage tax.