(Revenue Memorandum Circular No. 139-2020 published on December 23, 2020)
This Tax Alert is issued to inform all concerned on the following guidelines to utilize the 5% income tax credit on the actual PERA contribution:
a. Claims for the 5% tax credit must be supported with PERA Tax Credit Certificate (TCC) containing security features to ensure its authenticity.
b. The qualified contributors shall directly request for the issuance of the PERA TCC from the PERA administrator. In case of employer who also contributed for their qualified employee, only the employee can request the PERA TCC from the PERA administrator.
c. The 5% tax credit can be applied against individual income tax liability of those deriving income purely from business/profession or both from employment and practice of profession/business, withholding tax due on those deriving income purely from employee's compensation, or any direct internal revenue tax liability of those deriving income purely from abroad by an Overseas Filipino.
In case of changes in the contributor's source of income during the taxable year, the PERA TCC shall contain such restrictions prescribing the type of taxes upon which the said certificate shall be applied to, based on the contributor's status/classification as indicated in the annual report of the PERA Administrator.
d. The 5% tax credit shall be reported under line item “Other Tax Credits/payments” of the relevant tax returns. Excess of PERA TCC over tax due cannot be applied for refund but can be eligible for the issuance of PERA TCC.
For PERA TCC to be applied against withholding tax on compensation, the employer shall apply the amount of the PERA TCC in the annual year-end adjustments for computing the net withholding tax due of the qualified contributor-employee. If the total tax actually withheld and remitted to the BIR is more than the difference between the total tax due and the gross amount of PERA TCC, the excess shall be refunded to the qualified contributor-employee. However, if the gross amount of the PERA TCC shall exceed the total tax due, the excess shall pe carried over and deducted from the withholding tax of the qualified contributor-employee in the next taxable year.
e. Copy of PERA TCC, together with the other required attachments to the relevant tax returns, shall be manually submitted to the RDO where the contributor is registered.
For PERA TCC applied against withholding tax due on compensation, copy thereof shall no longer be submitted to the BIR. However, the employer shall produce the same when requested for inspection or verification by the BIR in case of BIR audit.
f. For employers with share in its employee's PERA contribution, the employer's share not exceeding the total amount actually contributed may be reported deductible expense from its gross sales, as "Share in Qualified Employee's PERA Contribution".
g. The BIR shall conduct procedures to validate availments of PERA TCC. A qualified contributor who shall use a spurious PERA TCC for the payment of his or her internal revenue taxes may be filed appropriate criminal charges and shall be liable to pay the amount utilized as tax credit with 50% penalty for fraud and 12% interest per annum.