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
Section 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
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