Tax on Motor Vehicle Income Payments

All sales, exchanges, or transfers of motor vehicles—whether brand new or second hand—are subject to the creditable withholding tax for transactions on or after June 1, 1991.
Coverage extends to transactions between two individuals not engaged in trade or business.
The creditable withholding tax applies even when no registration is made with the Land Transportation Office (LTO) at the time of payment, since withholding applies to the covered income payments described in the rules.
Exemption from withholding tax applies when:
- The motor vehicle is sold, exchanged, or transferred for P50,000 or less, and
- The motor vehicle is a 1978 or earlier model.
- Both conditions must be satisfied to qualify for the exemption.
Motorcycles and similar vehicles are excluded from coverage for purposes of the withholding rules on motor vehicle income payments.
When a motor vehicle is sold under the Car Development Program (CDP) or Commercial Vehicle Development Program (CVDP) by manufacturers to their franchised dealers, the sale is not subject to creditable withholding tax.
When a vehicle covered by the CDP/CVDP is sold to a person other than its franchised dealer, that sale becomes subject to the creditable withholding tax.

A 1% creditable withholding tax rate applies to sales, exchanges, or transfers of motor vehicles considered as “brand new” by persons participating in the government CDP or CVDP.
A 2% creditable withholding tax rate applies to sales, exchanges, or transfers of motor vehicles assembled by a person who is not a participant in either the CDP or CVDP.
Repossessed motor vehicles sold by franchised dealers are treated as sale of “second hand vehicles” and are therefore subject to 2% of the gross selling price.
When an exchange occurs, withholding applies as separate taxable transactions consistent with the rules, and the tax base is based on the applicable valuations under the exchange framework.

The creditable withholding tax is computed using the gross selling price at the applicable 1% or 2% rate.
The gross selling price is the consideration stated in the sales documents or the official Schedule of Values of Motor Vehicles, whichever is higher.
Computation uses the gross selling price without deducting discounts or price adjustments.
The withholding tax rate applies on the total amount of consideration or its equivalent.
The value added tax (VAT) passed on by the seller to the buyer does not form part of the tax base, whether indicated as a separate item in the VAT invoice or not.
For an exchange, the fair market value of the vehicles at the time of the exchange is used as the tax base.

The buyer-withholding agent must deduct and withhold the creditable withholding tax at the time the income payment is paid or payable.
The withheld tax must be remitted to the BIR within ten (10) days after the end of the month.

The amount of withholding tax paid to the BIR, evidenced by Confirmation/Official Receipts and covered by BIR Form No. 1743W, is creditable against the income tax liabilities of the seller.
The buyer must furnish the seller a Certificate of Income Tax Withheld At Source using BIR Form No. 1743.1.

The withholding tax return is filed with the Revenue District Officer where the withholding agent’s principal place of business is located, consistent with Revenue Regulations No. 6-85.
For purposes of Revenue Regulations No. 2-91 and as an exception, the withholding agent may file the withholding tax return and pay the tax in the Revenue District Office where the motor vehicle is or shall be registered.

The Land Transportation Office (LTO) must not register any sale, transfer, or exchange of a motor vehicle unless a Certificate Authorizing Registration (CAR) is presented.
The CAR must indicate the Payment Order/Confirmation Receipt or Official Receipt number, the date of payment, and the amount of creditable withholding tax.
Registration may proceed when the CAR indicates that the transaction is exempt from the withholding tax.

Officials authorized to issue CARs must include in their monthly report to the Chief, Withholding Tax Division, Diliman Quezon City all withholding payments on the sale or transfer of motor vehicles.
The monthly report must be submitted not later than the 7th day of the following month.

The Circular was adopted on April 1, 1991 by JOSE U. ONG, Commissioner.
The implementation must be applied through uniform and consistent enforcement of Revenue Regulations No. 8-90, as amended by Revenue Regulations No. 2-91.
The Circular directs wide publicity to promote compliance and uniform application of the withholding rules.