WITHHOLDING TAX ON UTILITY PAYMENTS IN THE PHILIPPINES (A practical doctrinal and procedural guide, updated to June 16 2025)
1 Overview
Under the Philippine expanded withholding-tax (EWT) system, certain payors must retain and remit to the Bureau of Internal Revenue (BIR) a portion of what they owe their suppliers. “Utility payments” — typically electricity, water, telecommunications, and internet charges — are classified as payments for services; when the payor is a withholding agent, part of every bill is withheld and later credited against the utility-provider’s income-tax liability.
2 Legal Foundations
| Source | Key provisions relevant to utilities |
|---|---|
| National Internal Revenue Code (NIRC) 1997, as amended | §§ 57-58 (creditable withholding at source); § 245 (rule-making power of the Secretary of Finance) |
| RR 02-98 (as repeatedly amended) | General EWT rules, base of computation, due dates, certificate (BIR Form 2307) |
| RR 06-2009, RR 11-2018, RR 07-2022 | 1 %/2 % EWT regime on payments by Top Withholding Agents (TWAs) for goods/services |
| TRAIN Law (RA 10963) & CREATE Law (RA 11534) | Did not alter the utility-EWT rates but raised VAT threshold, affecting mixed utility–supply situations |
| Key interpretive issuances | RMC 47-2003, 31-2019, 43-2022; BIR Rulings (e.g., BIR-LTAD2-260-21) clarifying that electricity, water, telecoms are “services” |
3 Who Must Withhold
- Government agencies, GOCCs, LGUs Statutory mandate: automatically withhold on all utility bills.
- Private entities that the BIR designates as TWAs (formerly “Top 10,000 Corporations,” now any taxpayer specifically listed in a BIR order or RMO). Trigger: once listed, they must withhold on every payment that falls within a covered classification.
- Payors in special industries (e.g., banks, insurance, PEZA/BOI-registered enterprises) if separately directed by revenue regulations or rulings.
Non-TWA private businesses are not required to withhold on utilities, though they may still need to withhold on certain other payments (e.g., professional fees, rent).
4 Applicable Income-Tax Withholding Rates
| Scenario | EWT rate | Statutory/Regulatory basis |
|---|---|---|
| Utility bills paid by a Government entity | 2 % | RR 02-98 §2.57.2(A) (services supplied to government) |
| Utility bills paid by a TWA | 2 % | RR 11-2018 §2 (services) |
| Utility bills paid by other private entities | 0 % (no withholding duty) | No regulation imposes EWT on ordinary non-TWA private payors |
| Payments to a non-resident foreign utility (rare: satellite bandwidth, subsea cable capacity) | 25 % final tax, unless tax-treaty relief obtained | NIRC § 25(B), § 57(A) |
Base of computation. • If VAT (or percentage tax) is separately indicated on the invoice, the EWT is computed on the net amount (amount exclusive of VAT). • If VAT is not separately shown, EWT is computed on the gross amount. • Universal charges, system loss and similar pass-through items included in the bill form part of the taxable base unless separately billed.
5 Illustrative Computations
| Example | Amounts (₱) | Explanation |
|---|---|---|
| A. Government office pays Meralco | Billing ₱112,000 (₱100,000 + 12 % VAT) → EWT = 2 % × ₱100,000 = ₱2,000. The agency pays Meralco ₱110,000 and remits ₱2,000 to BIR. | |
| B. TWA corporation pays PLDT | Billing ₱22,400 (₱20,000 + ₱2,400 VAT) → EWT = 2 % × ₱20,000 = ₱400. Net cash outflow ₱22,000. | |
| C. Non-TWA SME pays local water district | No withholding requirement, full ₱11,200 paid to supplier. |
6 Compliance Workflow
| Step | Form | Deadline* | Notes | |---|---|---| | Withhold upon payment/crediting | n/a | Same day | Book expense net of EWT. | | Monthly remittance | 0619-E | 10th day of following month (non-eFPS) or eFPS staggered schedule | Includes schedule of taxes withheld. | | Quarterly return | 1601-EQ | Last day of month following the quarter | Attach QAP (Qtrly Alphalist of Payees). | | Creditable certificate to utility | 2307 | On or before the 20th day following each quarter | Shows taxes withheld that the utility can credit. | | Annual information return | 1604-E | Jan 31 of following year | Summarises all EWT; transmit alphalist. |
* If a due date falls on a weekend/holiday, file on next working day (NIRC § 130).
7 Consequences of Non-Compliance
- Disallowance of expense under NIRC § 34(K): the utility expense becomes non-deductible if the required EWT was not withheld/remitted.
- Civil penalties: 25 % surcharge, 12 % annual interest (60 % starting July 1 2024 under the amended Tax Code), and compromise penalties.
- Criminal liability: willful failure constitutes a punishable offense under § 255 of the NIRC.
- Personal liability of officers: corporate officers who authorized non-withholding may be held solidarily liable (People v. Molina, G.R. L-1575-53, 1954; reiterated in BIR Rulings).
8 Special Topics & Grey Areas
| Issue | Practical treatment |
|---|---|
| Bundled service contracts (e.g., “power + maintenance”) | Split the bill: withhold 2 % on the service component; 1 % on any separately identified purchase of goods (RR 11-2018). If not segregated, apply 2 % on the entire amount net of VAT. |
| Pre-paid electricity / “Load” cards | No EWT at the time of card purchase (treated as advance payment); TWA should withhold when the load is actually applied to a billing. |
| Utility bills paid through a landlord and re-charged to tenant | Tenant withholds from the landlord (not from Meralco) if the pass-through amount forms part of the rent invoice (RR 12-2021). |
| Foreign satellite bandwidth (e.g., maritime VSAT) | Usually treated as royalty or service fee; 25 % final tax unless treaty gives lower rate; apply BIR’s e-APT procedure for treaty relief. |
| Withholding VAT (WVAT) | Government must also withhold 5 % on VATable utility bills (split 2 % input-VAT creditable to supplier, 3 % final to BIR) per RR 01-2020. Private TWAs have no WVAT duty. |
9 Recent Developments (2019 – 2025)
- RMC 31-2019 (TRAIN) — clarified that electricity and water are unequivocally “services,” ending debate over the 1 % vs 2 % rate.
- RR 07-2022 — updated eFPS deadlines and mandated e-filing of QAPs; auto-penalties now generated by e-TIS.
- Court of Tax Appeals, Meralco v. CIR (CTA EB No. 2303, July 3 2023) — upheld expense disallowance where payor failed to prove issuance of BIR Form 2307 despite actual tax remittance.
- BIR Digitization — EWT certificates (e-2307) can now be generated via the Electronic Certification System (ECS) Phase 2 rollout, easing reconciliation for utility companies.
10 Best-Practice Checklist for Withholding Agents
- Maintain vendor master-file labeling suppliers as “utility” so EWT is triggered automatically by the A/P system.
- Program ERP to strip VAT before applying the 2 % rate.
- Issue BIR Form 2307 electronically every quarter; utilities now accept PDF copies.
- Tie-out your 0619-E, 1601-EQ, and SL (subsidiary ledger) each month to prevent BIR system cross-matching errors.
- Secure BIR confirmation when unique arrangements arise (e.g., combined power + steam contracts in ecozones). Written rulings are binding on the BIR office that issued them.
11 Conclusion
Complying with the 2 % EWT on utility payments is straightforward once you determine (i) whether you are a withholding agent and (ii) that the base excludes VAT. The BIR now uses automated third-party matching, so procedural slips — late remittance, missing 2307s, or mismatched alphalists — carry real monetary risk. Implement a compliant withholding workflow, monitor BIR issuances, and document every step; doing so converts what might seem an administrative chore into a powerful tax-risk shield.