Finance Secretary Carlos Dominguez III has approved a revenue regulation (RR) reducing by almost half the 25 to 32 percent creditable withholding tax on the refund due customers of the Manila Electric Company (Meralco) to a flat 15 percent as provided under the Tax Reform for Acceleration and Inclusion (TRAIN) Law.
The new RR also lowers the current 20 percent withholding tax on the interest income on the refund paid to non-residential Meralco customers to 15 percent.
For other electric distribution utilities, the withholding tax on interest income on the refund paid to their non-residential customers, which is currently at 20 percent, was also cut to 15 percent under the new RR.
Finance Undersecretary Antonette Tionko, who recommended the approval of the new RR, said the withholding tax on the interest income on the refund of meter deposits paid to residential and general service customers whose monthly consumption exceeds 200 kilowatts per hour will be retained at 10 percent.
The refund to Meralco customers was ordered by the Supreme Court almost 16 years ago. The high court affirmed with finality on April 9, 2003 the decision of the then-Energy Regulatory Board or ERB (replaced by the Energy Regulatory Commission or ERC in 2001) to refund customers who were overcharged by Meralco since February 1994 because the company had wrongly passed on its income tax payments as costs tucked in the consumers’ monthly electricity bills.
Under the existing RR issued by the Bureau of Internal Revenue (BIR), the creditable withholding tax for the refund paid to Meralco is 25 percent for customers with active contracts, and 32 percent for those with terminated contracts.
These rates will be cut under the new RR approved by Dominguez to a flat 15 percent effective January 1, 2019 as provided under Section 17 of TRAIN, said Tionko, who heads the Revenue Operations Group of the Department of Finance.
Section 17 of TRAIN further amends Section 57 (B) of the National Internal Revenue Code as amended, to read: (B) Withholding of Creditable Tax at Source.— The Secretary of Finance may, upon the recommendation of the Commissioner, require the withholding of a tax on the items of income payable to natural or juridical persons, residing in the Philippines, by payor-corporation/persons as provided for by law, at the rate of not less than one percent (1 percent) but not more than thirty-two percent (32 percent) thereof, which shall be credited against the income tax liability of the taxpayer for the taxable year: Provided, That, beginning January 1, 2019, the rate of withholding shall not be less than one percent (1 percent ) but not more than fifteen percent (15 percent) of the income payment.
The new RR also covers the withholding tax on the interest income derived from any other debt instruments, which has been reduced from 20 to 15 percent.