April 3, 2006

BIR RULING [DA-204-06]

Ms. Teresa M. Tinamisan
tmtinamisan@pcfc.ph
Madam:
This refers to your e-mailed letter dated March 17, 2006 requesting for
opinion on the 20% tax imposed on prizes exceeding PhP10,000.00.
As represented, you joined a text-based game called "Karaoke Idol"
sponsored by Entertainment Gateway (EG) through Smart Communications. Said
game has a daily prize of PhP5,000.00 for the person who garners the highest
score for the day (top scorer of the day). There is no limit on how many times one
can win in this game as verified with the EG.
You won twelve (12) times on various dates. Your winnings should have
been PhP5,000.00/day for twelve (12) days or a total of PhP60,000.00. However,
EG informed you that they withheld 20% tax on your total winnings of
PhP60,000.00, hence, you received only PhP48,000.00 net of the withholding tax.
You felt that this is unfair since it is your opinion that had EG regularly
given out the prize on the day that you won, you should have received the full
PhP5,000.00 winning without the tax since this is less than PhP10,000.00. Rather
EG lumped the prizes so that they exceeded PhP10,000.00, thus, subject to the
20% withholding tax.
In reply, please be informed that pursuant to Section 24(B)(1) of the Tax
Code of 1997, a final tax at the rate of twenty percent (20%) is imposed, among
others, upon prizes and winnings derived by individuals from sources within the
Philippines, viz:
"(B) Rate of Tax on Certain Passive Income:
(1) Interests, Royalties, Prizes, and Other Winnings. A final
tax at the rate of twenty percent (20%) is hereby imposed upon the amount
of interest from any currency bank deposit and yield or any other
monetary benefit from deposit substitutes and form trust funds and similar
arrangements: royalties, . . . : prizes (except prizes amounting to Ten
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Philippine Taxation Encyclopedia First Release 2014

thousand pesos (P10,000.00) or less which shall be subject to tax under

Subsection [A] of Section 24); and other winnings (except Philippine
Charity Sweepstakes and Lotto winnings], derived from sources within the
Philippines . . ." (Emphasis ours.)
CDAEHS

Under the final withholding tax system, the amount of income tax withheld
by the withholding agent is constituted as a full and final payment of the income
tax due from the payee on the said income. The liability for payment of the tax
rests primarily on the payor as withholding agent (Section 2.57(A) f Revenue
Regulations No. 2-98, as amended). Under Section 57(A) of the Tax Code of
1997, the organizer is considered as the withholding agent required by law to
withhold such tax in the same manner and subject to the same conditions as
provided in Section 58 of the same Code. The tax on prizes and winnings is
imposed on the winner although the responsibility for the withholding of such tax
is entrusted by law upon the payor.
The exemption under Section 24(B)(1) of the Tax Code of 1997 refers to
exemption from the requirement of withholding (on the part of the payor) and not
exemption from the payment of income tax (on the part of the winner). Clearly,
prizes and winnings are subject to income tax regardless of the amount.
Under the withholding tax system, prizes and winnings in the amount
exceeding PhP10,000.00 shall be subject to withholding. However, if the prizes is
PhP10,000.00 or less, there will be no requirement on the part of the payor for the
withholding of the 20% final tax but the income recipient (winner) is required to
file an income tax return as prescribed in Sections 51 and 52 of the Tax Code of
1997 and declared the amount of his prize/winning in his income tax return, which
amount shall be subject to tax under Section 24(A) of the Tax Code of 1997.
To rule that prizes and winnings of winners on won on separate games and
days should be lumped, would be adding or incorporating matters not provided in
the law by administrative ruling. What is clear from the above provision is that
prizes and winnings in the amount less than PhP10,000.00 won per game or raffle
draw is not subject to the 20% withholding tax. Since your PhP5,000.00 winning
per game per day is less than PhP10,000.00, the said prize should be exempt from
the requirement of withholding, therefore, not subject to the 20% withholding tax
under Section 24(B)(1) of the Tax Code of 1997. However, you are required to file
an income tax return and declare the amount of your prize/winning in the said
return, which amount shall be subject to tax under Section 24(A) of the Tax Code
of 1997.
Please be guided accordingly.

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CD Technologies Asia, Inc. and Accesslaw, Inc.

Philippine Taxation Encyclopedia First Release 2014

Very truly yours,

Commissioner of Internal Revenue
By:

(SGD.) PABLO M. BASTES, JR.

OIC-Head Revenue Executive Assistant
Legal Service

Copyright 2014

CD Technologies Asia, Inc. and Accesslaw, Inc.

Philippine Taxation Encyclopedia First Release 2014