REPUBLIC ACT NO. 7497 - AN ACT AMENDING PERTINENT PROVISIONS OF THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED, RELATIVE TO THE FINAL WITHHOLDING TAX ON PURELY COMPENSATION INCOME
1. Title. – This Act shall be known as the "Finality
of the Withholding Tax on Purely Compensation Income." |
Sec. 2. Declaration of Policy. – It is the policy of the State to further enhance the development of the tax system in our country thus simplifying compliance and administration of the withholding tax system on purely compensation income.
Sec. 3. Coverage. – Every employer making payment of compensation income shall deduct and withhold a tax in an amount equal to the tax due on the employee's compensation income for the entire year, in accordance with Sec. 21(a) of the National Internal Revenue Code, as amended.
Sec. 4. The last paragraph of paragraph(a) of Sec. 21 of the National Internal Revenue Code, as amended, is hereby further amended to read as follows:
"In the case of married individuals, the husband and wife, subject to the provision of Sec. 44(d) hereof, shall compute separately their individual income tax based on their respective total taxable income: provided, that if any income cannot be definitely attributable to or identifiable as income exclusively earned or realized by either of the spouses, the same shall be divided equally between the spouses for the purpose of computing their respective taxable income."
Sec. 5. The first paragraph of item (1), paragraph (1) of Sec. 29 of the same Code, as amended, is hereby further amended to read as follows:
"(1) Personal exemptions allowable to individuals. –
"(1) Basic personal exemption. – For the purpose of determining the tax provided in Sec. 21(a) of this Title, there shall be allowed a basic personal exemption as follows:
"For single individual or married individual
judicially decreed as legally separated with no
qualified dependents P9,000
"For head of a family P12,000
"For each married individual P18,000
Provided, that, in case one of the spouses is deriving taxable income, only said spouse shall be allowed to avail of the aforesaid basic personal exemption for married individual."
Sec. 6. The first paragraph of item (2) (A), paragraph (1) of Sec. 29 of the same Code, as amended, is hereby further amended to read as follows:
"(2) Additional exemptions –
"(A) Taxpayers with dependents. – A married individual or a head of a family shall be allowed an additional exemption of Five thousand pesos (P5,000) for each dependent: provided, that the total number of dependents for which additional exemptions may be claimed shall not exceed four dependents: provided, further, that the additional exemption for dependents shall be claimed by only one of the spouses in the case of married individuals."
Sec. 7. A new paragraph (C) is hereby added to Sec. 44(a)(2) of the National Internal Revenue Code, as amended, to read as follows:
"(C) Individuals with respect to pure compensation income, as defined in Sec. 28(a)(1), derived from sources within the Philippines, the income tax on which has been withheld under the provisions of Sec. 72 of this Code: provided, that an individual deriving compensation concurrently from two or more employers at any time during the taxable year shall file an income tax return: provided, further, that an individual whose pure compensation income exceeds Sixty thousand pesos (P60,000) shall also file an income tax return."
Sec. 8. Paragraph (d) of Sec. 44 of the same Code, as amended, is hereby further amended to read as follows:
"(d) Husband and wife. – Married individuals, whether citizens, resident or nonresident aliens who do not derive income purely from compensation, shall file a return for the taxable year to include the income of both spouses, but where it is impracticable for the spouses to file one return, each spouse may file a separate return of income but the returns so filed shall be consolidated by the Bureau for purposes of verification for the taxable year."
Sec. 9. Sec. 72(d)(B) of the same Code, as amended, is hereby further amended to read as follows:
"(B) Change of status. – In case of change of status of an employee as a result of which he would be entitled to a lesser or greater amount of exemption, the employee shall, within ten days from such change, file with the employer a new withholding exemption certificate reflecting the change."
SECTION 10. Item (1), paragraph (f) of Sec. 72 of the same Code, as amended, is hereby further amended to read as follows:
"(1) The husband shall be deemed the head of the family and proper claimant of the additional exemption in respect to any dependent children, unless he explicitly waives his right in favor of his wife in the withholding exemption certificate;"
SECTION 11. A new paragraph (h) is hereby added to Sec. 72 of the National Internal Revenue Code, as amended, to read as follows:
"(h) Year-end adjustment. – On or before the end of the calendar year but prior to the payment of the compensation for the last payroll period, the employer shall determine the tax due from each employee on taxable compensation income for the entire taxable year in accordance with Sec. 21(a). The difference between the tax due from the employee for the entire year and the sum of taxes withheld from January to November shall either be withheld from his salary in December of the current calendar year or refunded to the employee, not later than January 25 of the succeeding year."
SECTION 12. Sec. 73 of the same Code, as amended, is hereby further amended to read as follows:
"Sec. 73. Liability for tax. – (a) Employer. – The employer shall be liable for the withholding and remittance of the correct amount of tax required to be deducted and withheld under this Chapter. If the employer fails to withhold and remit the correct amount of tax as required to be withheld under the provision of this Chapter, such tax shall be collected from the employer together with the penalties or additions to the tax otherwise applicable in respect of such failure to withhold and remit.
"(b) Employee. – Where an employee fails or refuses to file the withholding exemption certificate or willfully supplies false or inaccurate information thereunder, the tax otherwise to be withheld by the employer shall be collected from him including penalties or additions to the tax from the due date of remittance until the date of payment. On the other hand, excess taxes withheld made by the employer due to: (a) failure or refusal to file the withholding exemption certificate; or (b) false and inaccurate information shall not be refunded to the employee but shall be forfeited in favor of the Government."
SECTION 13. A new section, Sec. 251-A, is hereby added in the National Internal Revenue Code, as amended, which shall read as follows:
"Sec. 251-A. Failure of a withholding agent to refund excess withholding tax. – Any employer/withholding agent who fails, or refuses to refund excess withholding tax shall, in addition to the penalties provided in this Title, be liable to a penalty equal to the total amount of refunds which was not refunded to the employee resulting from any excess of the amount withheld over the tax actually due on their return."
SECTION 14. The first paragraph of Sec. 254 of the same Code, as amended, is hereby further amended to read as follows:
"Sec. 254. Failure to file return, supply correct and accurate information, pay tax, withhold and remit tax and refund excess taxes withheld on compensation. – Any person required under this Code or by regulations promulgated thereunder to pay any tax, make a return, keep any record, or supply correct and accurate information, who willfully fails to pay such tax, make such return, keep such record, or supply such correct and accurate information, or withhold or remit taxes withheld, or refund excess taxes withheld on compensation, at the time or times required by law or regulations shall, in addition, to other penalties provided by law, upon conviction thereof, be fined of not less than Ten thousand pesos (P10,000) and imprisonment of not less than one (1) year but not more than ten (10) years."
SECTION 15. Rules and Regulations. – The Bureau of Internal Revenue shall issue and publish the implementing rules and regulations to implement the provisions of this Act.
SECTION 16. Reportorial Requirement. – The Bureau of Internal Revenue shall provide Congress with an annual report with respect to the implementation of the provision of this Act.
SECTION 17. Repealing Clause. – Any law, decree, order, rule and regulation, or part thereof, which is inconsistent with this Act is hereby repealed or modified accordingly.
SECTION 18. Effectivity Clause. – This Act shall take effect upon its approval.
Approved: May 15, 1992