Creditable Tax on Refund Interest by Utilities

Legal basis and policy intent

BIR Revenue Regulations No. 2-2009 is issued pursuant to Section 244 in relation to Section 57(B) of the National Internal Revenue Code of 1997, as amended.
The regulation is also implemented in view of the interest component arising from refunds mandated by energy regulation rules governing meter deposits.
The regulation’s purpose is to ensure the Government receives the fair amount of taxes due from interest income at the time interest payments are made.
The regulation’s purpose is to provide a mechanism to discourage income recipients from failing to declare the receipt of interest income for tax purposes.

Definitions and incorporated energy rules

“Meralco Refund” refers to refund arising from Supreme Court Case G.R. No. 14814 of April 9, 2003 to customers under Phase IV as approved by ERC.
“Interest income on the refund of meter deposits” refers to interest determined, computed, and paid under ERC Resolution No. 8, series of 2008, dated June 4, 2008, which governs the refund of meter deposits to residential and non-residential consumers.
“Magna Carta for Residential Electricity Consumers” (promulgated by the Energy Regulatory Commission (ERC) on June 17, 2004) provides for exemption from meter deposit payments and cost-bearing rules for loss/damage due to the customer.
“DSOAR” refers to ERC Resolution No. 2005-10RM, dated January 18, 2006, especially Article 3.4.2 on non-residential electricity customers and meter deposit refunds.
The meter deposit refund rules require that the refund of meter deposits and applicable interest be completed not longer than sixty-six (66) months from the effectivity of the rules.

Amendments to creditable withholding tax rates

Section 2.57.2 of Revenue Regulations No. 2-98, as amended, is further amended by adding MERALCO payments and interest income on refunds of meter deposits as income payments subject to creditable withholding tax for persons residing in the Philippines.
Creditable withholding tax applies to the following items under Section 2.57.2(U) and (V) (as amended by this regulation):
- (U)(1) MERALCO Refund (G.R. No. 14814, April 9, 2003; Phase IV approved by ERC):
  - Twenty Five Percent (25%) for customers with active contracts as classified by Meralco.
  - Thirty Two Percent (32%) for customers with terminated contracts as classified by Meralco.
- (U)(2) Interest income on the refund of meter deposits determined, computed, and paid under the meter deposit refund rules approved by ERC Resolution No. 8, series of 2008 dated June 4, 2008, implementing Article 8 of the Magna Carta for Residential Electricity Consumers and DSOAR rules exempting all electricity consumers from payment of meter deposits.
Creditable withholding tax on interest income is imposed on the gross amount of interest, whether paid directly to the customers or applied against customers’ billing, using the following rates:
- Residential and General Service customers whose monthly electricity consumption exceeds 200 kwh as classified by MERALCO: Ten percent (10%).
- Non-Residential customers: Twenty percent (20%).
For interest paid through or applied by other electric distribution utilities (DUs), the same withholding treatment applies on the gross amount of interest whether paid directly or applied against customers’ billing under the ERC Resolution No. 8, series of 2008 meter deposit refund rules:
- Residential and General Service customers whose monthly electricity consumption exceeds 200 kwh as classified by the concerned DU: Ten percent (10%).
- Non-Residential: Twenty percent (20%).

Returns and payment of taxes withheld at source

Section 2.58(A)(2) of Revenue Regulations No. 2-98, as amended by Revenue Regulations 8-2005, is further amended to govern returns and payment for taxes withheld on relevant payments under Section 2.57.2(U) and (V).
Meralco and other Distribution Utilities (DUs) required to withhold taxes under Section 2.57.2(U) and (V) must submit a Monthly Alphalist of Payees (MAP) (Annex “Aa”) for each calendar quarter.
The MAP must be electronically attached to the monthly remittance return of the calendar quarter (e.g., BIR Form 1601-E for the quarter ending March with attached MAP for January, February, March).
The MAP must contain an alphalist of customers from whom taxes have been withheld for the return period and in whose behalf the taxes were remitted under BIR Form No. 1601-E, showing the total amount of income and taxes withheld and remitted.

Repealing clause and publication effectivity

All revenue regulations, revenue memorandum orders or circulars, or other revenue issuances inconsistent with these regulations are repealed, amended, or modified accordingly.
The regulations become effective fifteen (15) days after publication in a newspaper of general circulation.