Short answer

No. BIR Form 2307 (Certificate of Creditable Tax Withheld at Source) may be credited only against income tax (quarterly or annual). It cannot be used to reduce or offset percentage tax (a business tax reported in BIR Form 2551Q). Percentage tax is separate and distinct from income tax.

Why 2307 can’t be applied to percentage tax

Different kinds of taxes.
- Creditable Withholding Tax (CWT) shown on Form 2307 is an advance payment of your income tax under the National Internal Revenue Code (NIRC) Section 57(B).
- Percentage tax (Title V of the NIRC, e.g., Sec. 116 and other percentage taxes) is a business tax on gross sales/receipts of non-VAT taxpayers (and certain specific businesses). It’s not an income tax.
How the returns are built.
- Income tax returns (e.g., BIR Form 1701Q/1701A for individuals; 1702Q/1702-RT for corporations) have dedicated schedules for tax credits/2307 (SAWT) where the amounts in your certificates reduce the income tax due.
- Percentage tax return (BIR Form 2551Q) has no line for 2307 credits because CWT is irrelevant to computing a business tax on gross.
Withholding’s legal character.
- The withholding agent’s remittance is on your behalf toward your income tax liability. It does not pre-pay percentage tax (nor VAT). Hence, there’s no legal basis to net CWT against percentage tax.

Practical implications

If you are non-VAT and liable to percentage tax: You still pay percentage tax on your gross sales/receipts via BIR Form 2551Q, regardless of how much your customers withheld and certified on 2307.
Where the 2307 helps you: You claim those CWTs in your income tax filings: quarterly (1701Q/1702Q) and final/annual (1701A/1702). They directly reduce income tax due; excess may be carried over to the next periods or applied for refund (subject to the usual requirements and deadlines). In practice, many taxpayers choose carry-over.
8% income tax option (individuals): If you opted into the 8% income tax on gross sales/receipts in lieu of percentage tax and the graduated rates, you don’t file/pay percentage tax at all. Your 2307 may still be credited against your 8% income tax because it’s still an income tax.
Final vs. creditable withholding:
- Form 2307 = creditable (offsets income tax).
- Form 2306 = final withholding (already the final income tax on that income), so you don’t claim it as a credit again.

Common situations and examples

Example 1 – Service provider (non-VAT, subject to percentage tax)

Gross receipts for the quarter: ₱500,000
Customer withheld 2% CWT: ₱10,000 (with 2307)
Percentage tax (2551Q): computed on ₱500,000. The ₱10,000 CWT cannot reduce this.
Income tax (1701Q/1701A): the ₱10,000 appears in your SAWT schedule and reduces your income tax due.

Example 2 – Freelancer on the 8% option

Gross receipts for the year: ₱800,000
Income tax: 8% × (gross less ₱250,000, if applicable to individuals) under the rules for the 8% option.
Customer withheld 5% CWT totaling ₱30,000 (2307s).
You credit the ₱30,000 against your 8% income tax. No percentage tax return is due because the 8% option replaces it.

Example 3 – Excess CWT and no income tax due

If your CWT exceeds your income tax, you may carry forward the excess to future income tax periods or seek a refund (prove withholding, substantiate income, meet procedural deadlines). You still cannot use the excess to pay percentage tax.

Compliance checklist

Gather all 2307s for each quarter/year (payee name, TIN, income payment nature, period, amount, and tax withheld).
Encode in SAWT (Summary Alphalist of Withholding Taxes) when filing income tax returns (quarterly and annual).
Keep originals of 2307 and related documents (official receipts, invoices, contracts) for audit.
File percentage tax (2551Q) on time if you are a non-VAT taxpayer not on the 8% option—don’t try to net 2307 here.
Reconcile: your gross per books vs. 2307 totals vs. returns (discrepancies often trigger questions in audit).

FAQs

Q: My client withheld 2% and gave me a 2307. Can I subtract that from my 2551Q amount payable? A: No. Claim it in your income tax return, not in 2551Q.

Q: I’m VAT-registered. Does 2307 affect my VAT or percentage tax? A: No. 2307 affects income tax only. VAT and percentage tax are separate business taxes.

Q: The withholding seems wrong (e.g., rate too high). What do I do? A: Ask the withholding agent to correct and reissue the 2307. If already remitted, you’ll generally credit whatever was withheld against your income tax—but you still can’t use it for percentage tax.

Q: What if I switched to the 8% option mid-year? A: Follow the rules on when the 8% election takes effect. Once effective, you stop filing percentage tax and can continue to apply 2307s against your 8% income tax.

Bottom line

Form 2307 is never a credit against percentage tax.
Use 2307 only to reduce your income tax (including the 8% option).
Pay percentage tax independently when applicable; do not net 2307 there.

This article provides general tax information only and is not a substitute for tailored advice on your specific facts.