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Tax on Contract of Service Employees

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1 Tax on Contract of Service Employees on Tue Apr 12, 2011 2:44 pm


Arresto Menor
Hi, I'm a government employee and is hired under the status of "Contract of Service" (COS). The tax deducted from me (monthly) is 13% of my monthly income. I wonder why I'm taxed 13%. I have raised this question to the admin assigned to us but up to now, there's no clear explanation why.

My payslip looks like this:

Net Amount P X,XXX.XX

Service Fee XX,XXX.XX
Less:T/U/A ---

My monthly tax is around P2,800. Are employees under COS pay 13% tax? I also would like to know If I am entitled to the so-called Tax Refund.

Your response is highly appreciated. Thanks Very Happy

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2 Re: Tax on Contract of Service Employees on Tue Apr 12, 2011 9:04 pm


Reclusion Perpetua
Income tax is an "operation" of the tax table. More salary, more tax.

I'd estimate you're listed exemption is SINGLE and you are receiving a gross (taxable) salary of around or more than 15k semi-monthly. That would be in the range then.

Tax refund is possible if your tax withheld is greater than tax due when computed at year end or when you are separated.

And the refund covers excess of taxes paid - not a refund of the whole tax that was withheld. (Just clarifying for the benefit of others who assume a tax refund means total return of the whole amount)

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3 Re: Tax on Contract of Service Employees on Wed Apr 13, 2011 2:30 pm


Arresto Menor
Thank you for the response.

My concern now is I just received "Certificate of Creditable Tax Witheld at Source/BIR Form 2307". Upon checking, on the "Tax Witheld For the Quarter" portion of the form, the tax withheld from me by the BIR is 10% of my total quarterly income. However, my office withheld 13% from me. I wonder where the 3% goes? Is it legal?

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4 Re: Tax on Contract of Service Employees on Thu Apr 14, 2011 12:58 am


does the tax withheld on your payslips when added together match the tax withheld on your 2307?

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5 Goods ba or Income on Mon Jul 11, 2011 2:47 pm


Arresto Menor
I think the first thing that has to be resolved is how are workers hired under Contract of Service in the government taxed? Are they taxed as individual income earners or their services are treated as goods?

Kasi if they are treated as Individual income earners, the the principle of income taxation will apply. Meanwhile, if they are taxed in the same way as goods, Value added tax I supposed is being applied kaya mataas ang tax na nababawas sa kanilang take home pay.

Ang argument kasi nung ibang finance people was since no employer-employee exists in Contract of Service, then payment of their services is considered as goods not income. On the otherhand, ang argument naman nung side ng workers is ang sweldo nila is their income kaya dapat income taxation ang mag-apply not other forms.

I guess this should open another round of discussion in this thread para malinawan tayo ng mga lawyers especially those who are really exposed sa taxation.

Last edited by jupet102076 on Mon Jul 11, 2011 2:50 pm; edited 1 time in total (Reason for editing : grammar)

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Arresto Menor
Good day po!

I am one of the many employees of our local college and I would like to inquire whether or not Contract of Service (COS) employees are entitled on the said withholding tax. Are we entitled on that?

Thank you po.

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7 Re: Tax on Contract of Service Employees on Thu Aug 07, 2014 6:28 pm


Reclusion Perpetua
As long as merong income, tax is required.

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8 Re: Tax on Contract of Service Employees on Mon Aug 11, 2014 5:20 pm


Arresto Menor
Good Afternoon!

Im Paul Yu, currently hired as Contract of Service (JO) or Job Order. My salary was 18,000php per month based under the WFP of 2014 ICT of Office where i work now. But Sadly, under the COA Rules, Only Six(6) months (Jan. 15-July 14, 2014) were allowed. 10% tax was deducted. But sadly again, on the next six(5)months(Aug. 1-December 31, 2014), my salary was cut down to 13,000php per month.

It is Possible to cut down salary from 18,000 to 13,000 per month, when the salary is based on WFP and allowed by our Central Office and funded by the DBM?


Based on my curiosity is 13,000php per month were taxable to 10%?

i'm in the lowest level of the food chain, you advice will be a great help for me.

thank you and god bless


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9 Re: Tax on Contract of Service Employees on Mon Jul 13, 2015 10:43 am


Arresto Menor
tanong ko lang po entittled po ba sa per diem ang isang job order employee sa goverment?

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10 Re: Tax on Contract of Service Employees on Mon Jul 13, 2015 11:09 am


Reclusion Perpetua
ledheart73 wrote:tanong ko lang po entittled po ba sa per diem ang isang job order employee sa goverment?

Mas mabuting tanungin yan sa CSC.

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11 Re: Tax on Contract of Service Employees on Tue Jul 14, 2015 9:41 am


Arresto Mayor
For withholding tax on compensation to apply, you must first establish the fact that there is an employer-employee relationship between the payor and the payee. In its absence other tax type may apply such as expanded withholding taxes or final withholding tax.

If you are an employee, withholding tax on compensation applies at the rate of 15-32%.

If you are an independent contractor, then expanded withholding tax will apply at 10%/15% if services rendered refer to a professional service, or 2% if prime contractor.

If you are a non-resident alien and services were rendered in the Philippines, then 25% final withholding tax will apply.

Now, under the Labor Code, the following are the elements of employer-employee relationship:

1. Selection and hiring of the employees by the employer;

2. Payment of wages by the employer at agreed intervals and basis - hourly, daily, weekly, monthly, by piecework, or at any reasonable basis;

3. Power of dismissal by the employer under established criteria and upon valid grounds; and

4. Power of control of the employer as to the means and methods of doing the work.

Absence of any of the 4 elements (four-fold test), there can be no such employer-employee relationship and you cannot apply withholding tax on compensation.

On the other hand, under Section 2.78.3 of BIR Revenue Regulation 2-98, as amended, employer-employee relationship is establish under the following criteria: (a) has the right to control and direct the individual who performs the services, not only as to the result to be accomplished by the work but also as to the details and means by which the result is accomplished; (b) has the right to dismiss; and (c) furnishes the tools and place of work.

The foregoing is in addition to existing jurisprudence for guidance in determining the worker’s employment status.

Why do we need to know this? Because there may be deficiencies or excesses in the withholding of appropriate taxes which may be subject to penalties in case of deficiency or refund in case of excess payments.

Based from your facts, since you were issued the Certificate of Creditable Tax Withheld at Source then you are taxed under expanded withholding tax. However, there seems to be a discrepancy on the tax rate applied. It should either be 10%, 15%, or 2% depending on what type of services rendered as mentioned above.

You should clear this up to the HR or Finance/Accounting Department. What is the 3% for? And why are they withholding 3% from your salary when they only report 10%? It's better if you will have your query written and duly received by the concerned department. State legal basis and if they can't explain what is the 3% for or if explained but still you reckon that the deduction is not allowed by law hence illegal, then demand a refund as this constitute an unauthorized deduction pursuant to Article 113 to 115 of the Labor Code as amended and Sections 9 to 11 Rule VIII of the Implementing Rules of Book III of the Labor Code.

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