Question & AnswerQ&A (BIR REVENUE MEMORANDUM CIRCULAR NO. 74-90)
The Small Town Lottery (STL) is governed under Republic Act No. 1169 as amended by B.P. Blg. 42 and P.D. No. 1157, specifically in relation to the Philippine Charity Sweepstakes Office (PCSO).
The Philippine Charity Sweepstakes Office (PCSO) promulgated the rules and regulations governing the Experimental Runs of Various Numbers Game for the Small Town Lottery.
The holding of a Small Town Lottery must be endorsed by a resolution passed by the Sangguniang Panlalawigan or Sangguniang Panglunsod.
No, prizes from Small Town Lotteries are not exempted from taxes. Only the holding of horse race sweepstakes and the sale of tickets therein by the PCSO are exempted from all taxes under Section 4 of Republic Act No. 1169.
Prizes from Small Town Lotteries exceeding P3,000 are subject to a final withholding tax of twenty percent (20%) pursuant to Section 21(c)(1) of the Tax Code.
Prizes less than P3,000 from Small Town Lotteries are subject to income tax under Section 21(a) of the Tax Code.
The individual, corporation, company, or juridical entity authorized by the PCSO to conduct the Small Town Lottery is responsible for withholding the 20% final tax before paying the prize to the winner, as per Section 50(a) of the Tax Code.
Yes, the income derived by the entity conducting the Small Town Lottery is subject to income tax.
Section 21(c)(1) of the Tax Code exempts Philippine Charity Sweepstakes winnings from the 20% withholding tax, but this exemption does not apply to Small Town Lottery prizes.
The purpose of BIR Revenue Memorandum Circular No. 74-90 is to clarify the taxability of prizes from Small Town Lotteries and to provide rules on the withholding and payment of taxes on such prizes.