THE Bureau of Internal Revenue (BIR) has clarified the tax treatment of salaries paid by the government to its personnel who are engaged under a contract of service or job-order arrangement.
Internal Revenue Commissioner Caesar R. Dulay issued Revenue Memorandum Circular 130-2016, citing a common issue, “which arise on the appropriate rate of withholding tax that will be imposed on the payment of services rendered by government personnel rendering services under a job-order arrangement.”
Dulay’s circular said government personnel hired under job-order arrangements are not employees of the government, and are, thus, considered as service contractors who are taxed differently on the remuneration they receive for rendering such services.
“It is settled that under existing policies and guidelines of the Civil Service Commission, defining the terms ‘individual contract of services/job order’ and clarifying the terms ‘contract of service’ and ‘job order’, there is no employer-employee relationship created under either a job order or contract for service, and that services rendered pursuant thereto shall not be considered government service,” the circular clarified.
Thus, the circular said government employees who are nonprofessionals shall be taxed either as a value-added tax (VAT)-registered taxpayer, if he qualifies as such, or as a service contractor required to pay a 3-percent withholding tax on money payments received from the government.
“The performance of services by the job-order personnel pursuant to Executive Order 782 or Executive Order 366 is not under an employer-employee relationship,” the circular said. “Hence, it is a sale or performance of service.”
If such sale or performance of service amounts to more than the VAT threshold of P1,919,500 for the taxable year, then such job-order personnel shall be subject to the payment of 12 percent VAT.
In determining whether a job-order personnel of the government has reached the VAT threshold, his other income from other lines of business, which can be subjected to VAT shall be aggregated with his income from the sale or performance of service in the job-order contract with the government.
Even if the job-order personnel does not meet the VAT threshold, he would still be required to pay a percentage tax of three percent to be withheld at source.
Dulay’s circular cited Section 5.116 of Revenue Regulations 2-98 requiring the withholding of percentage tax to any money payment made by the government or any of its bureaus, offices and instrumentalities, including government-owned or -controlled corporations.
Under the cited provision, persons exempt from VAT shall be required to pay a 3-percent withholding tax on gross money payments made by the government to them.
Dulay’s circular provides for a higher tax rate on job-order personnel who are professionals, such as lawyers
and accountants.
“In general, individuals who follow an independent trade, business or profession, in which they offer their services to the public, are not employees,” the circular said.
“For professionals who are paid for the services they render, they are subject to a withholding tax rate of 10 percent or 15 percent, whichever is applicable, on their gross professional fee,” it added.
For professionals having a gross income of more than P720,000 for the current taxable year, a creditable withholding tax of 15 percent shall be imposed on the gross income; if the gross income is less than or equal to P720,000 then the creditable withholding tax rate shall be 10 percent.
7 comments
is this right?
how about those job orders who were paid 170/day only with a number of dependents within their family.
Question, Sir.
We are under a Contract of Service in a government office. The agency deducts 10% withholding tax and 3% withholding of business tax (gov’t & private). Thus, a total of 13% monthly. Our compensation/fee ranges from P34,000.00 to P39,000.00. Is the deduction of 13% correct?
Thank you.
It is also the same in our agency, our JO personnel signed a contract of service and their wages form part of the Maintenance and Other Operating Expenses (MOOE). For professionals with their income less than P720,000.00, we withheld 10% if over 720k, it is 15%. Besides the Expanded Withholding Tax we also withheld from them 3% Percentage Tax (Business Tax since they aren’t VAT Registered nor their income is more than P1,919,500.00). They no longer file the returns on a monthly basis since they have filed their Annex A for substituted filing.
Serious question, is there a difference between under a contract of service and a job-order contract?
Any changes from Train law? and are professional fees lowered to 8%?
AS a Contract of Service earning 21,000 monthly, we are withheld a tax of 13%. However are we not entitled to personal exemptions and additional exemptions for the dependents that we have?
Hi! Let me give my humble opinion on this issue.
If your gross receipts for the year do not exceed P3M, then you may elect to be taxed at a preferential rate of 8%. This is in lieu of both income and other percentage tax of 3%. However, you need to signify your intention to be taxed at 8% in your 1st quarterly income tax return. Therefore, if you are receiving P100,000 a month, your income tax and business tax will be computed as follows:
Gross receipts (100,000 x 12 months) 1.2M
Less: Personal exemption 250k
Net taxable income 950k
Multiplied by 8%
Tax due 76K
In this example your effective tax rate is 6.33% and this includes income and business taxes. The government agency should deduct only 5% withholding and you pay the difference of 1.33% when filing your income tax return.
I hope this helps