Do You Withhold Tax When Buying Agricultural, Marine, or Forest Products? The Top Withholding Agent Exemption

A Top Withholding Agent (TWA) generally withholds 1% expanded withholding tax (EWT) on local purchases of goods, but Revenue Regulations (RR) No. 11-2018 carves agricultural, forest, and marine food products in their original state out of the definition of “goods” for that rule — so a TWA buying unprocessed rice, vegetables, livestock, poultry, or fresh fish from a qualifying supplier does not withhold under the general 1% goods rule. This guide covers who the exemption protects, where it stops, and a worked example.

This guide is part of the BIR Form 2307 series. For the general 1% goods rule this exemption sits inside, see BIR Form 2307 for Purchases of Goods: Top Withholding Agent 1% Rate Explained; for full TWA classification rules, see Who Is a BIR Top Withholding Agent?.

Why are agricultural, marine, and forest products excluded from TWA goods withholding? #

RR No. 11-2018 amended the definition of “goods” under Section 2.57.2 of RR No. 2-98 so that it covers tangible personal property but does not include agricultural, forest, and marine food and non-food products described under a separate item of the same section. The practical effect is that a Top Withholding Agent’s ordinary 1% withholding rule on goods purchases (ATC WC158/WI158) simply does not attach to purchases that fall inside that carved-out category — there is nothing to withhold because the purchase does not meet the definition of “goods” the rule is written around.

Who qualifies as an “agricultural supplier” under the exemption? #

Item (N) of Section 2.57.2 defines an agricultural supplier as a seller of agricultural, forest, and marine food and non-food products, livestock and poultry of a kind generally used as or yielding food for human consumption, and breeding stock and genetic material for them — in their original state. Item (N) of Section 2.57.2 of RR No. 2-98, as amended, is summarized in secondary tax commentary as follows:

“The term ‘agricultural suppliers’ refers to suppliers/sellers of agricultural, forest and marine food and non-food products, livestock and poultry of a kind generally used as, or yielding or producing of foods for human consumption; and breeding stock and genetic materials therefor.”

This site could not reach the BIR’s own PDF of RR No. 11-2018 directly to re-verify the exact regulation typesetting, so the quotation above is a secondary-source restatement of item (N), not a screenshot of the primary text — confirm the precise wording against the BIR’s published regulation before relying on it for a formal filing position. That definition covers a palay trader, a vegetable consolidator, a livestock or poultry raiser, and a fishing operator selling fresh catch, as long as the product has not been processed beyond what is needed to bring it to market.

Where does the exemption stop applying? #

The exemption is an “original state” test, not a blanket exemption for anything with agricultural origins — once a product is processed beyond simple cleaning, drying, or grading for market, it can fall back into the ordinary goods definition and the TWA’s 1% withholding rule. A TWA buying canned sardines, cured tocino, or milled and packaged specialty rice from a food manufacturer is generally buying a processed good, not an agricultural product in its original state, and should apply the standard 1% rate (or the applicable services rate, if the arrangement is structured as a service) rather than assuming the agricultural carve-out follows the product through every stage of processing.

This is a creditable withholding tax rule specific to Top Withholding Agents under RR No. 11-2018 — it is separate from, though similarly worded to, the VAT exemption for agricultural and marine food products in their original state under NIRC Section 109(A). A product can be treated one way for VAT and require independent analysis for TWA withholding purposes; the two exemptions should not be assumed to travel together automatically.

Worked example: a TWA buys palay from a farmer-supplier #

A Top Withholding Agent buying ₱500,000 of unmilled palay directly from farmer-suppliers withholds nothing under the goods rule, because unmilled palay in its original state falls within the agricultural products carve-out.

Luzon Grains Trading Corp., a classified Top Withholding Agent, purchases ₱500,000 of freshly harvested, unmilled palay from a cooperative of rice farmers during harvest season:

If Luzon Grains later mills that same palay into packaged rice and resells it, and separately purchases milling or logistics services from a third-party contractor to process it, the payment for that milling service is not itself an agricultural product — it is a service purchase, and the TWA’s 2% services withholding rule (ATC WC160/WI160) applies to that separate transaction on its own terms.

Frequently Asked Questions #

Do Top Withholding Agents withhold tax on purchases of vegetables, rice, or fish? #

Generally no. Revenue Regulations No. 11-2018 defines “goods” for the Top Withholding Agent 1% withholding rule to exclude agricultural, forest, and marine food products in their original state, so a TWA buying unprocessed produce, grains, livestock, poultry, or fresh catch from an agricultural supplier does not withhold under the general goods rule.

Who counts as an agricultural supplier under this exemption? #

Under item (N) of Section 2.57.2 of RR No. 2-98 as amended by RR No. 11-2018, an agricultural supplier is a seller of agricultural, forest, and marine food and non-food products, livestock and poultry of a kind generally used as or producing food for human consumption, and breeding stock and genetic material for them, in their original, unprocessed state.

Does the exemption still apply once the product is processed? #

No. Once an agricultural, forest, or marine product undergoes processing beyond simple preparation for the market — canning, milling into flour, curing, smoking, or similar processing that changes its original state — it falls outside the exemption’s original-state test and the TWA’s ordinary 1% goods withholding rule can apply.

Does this exemption also cover VAT on agricultural food products? #

No. This is a creditable withholding tax exemption for Top Withholding Agents under RR No. 11-2018, separate from the VAT exemption for certain agricultural and marine food products in their original state under NIRC Section 109. The two rules use similar “original state” language but operate under different Tax Code provisions and should be checked independently.

What if a TWA is unsure whether a supplier qualifies as agricultural? #

A TWA should document the nature of the product purchased (unprocessed vs. processed) and the supplier’s own registration and product description before excluding a purchase from withholding, since the burden of showing the exemption applies falls on the withholding agent if the BIR later questions why a purchase went unwithheld.

Summary #

The Top Withholding Agent 1% goods rule under RR No. 11-2018 does not reach agricultural, forest, and marine food products in their original state — but the carve-out tracks the product’s state, not its origin, so processed derivatives of the same product can fall back into ordinary withholding. Document what was actually purchased before deciding not to withhold. For the surrounding TWA rules, see BIR Form 2307 for Purchases of Goods and Who Is a BIR Top Withholding Agent?.