BIR Form 2307 for Government Money Payments: What GMP Withholding Agents Must Know

Government offices withhold two separate taxes on payments to suppliers, and issue a separate BIR Form 2307 for each: a 1% (goods) or 2% (services) creditable withholding tax on income under Revenue Regulations No. 2-98, and a 5% creditable VAT withholding under Revenue Memorandum Circular No. 36-2021. Both apply to the same government money payment (GMP) when the supplier is VAT-registered.

This guide is part of the BIR Form 2307 series. It covers who counts as a GMP withholding agent, the two applicable rates, and a worked example for a supplier paid by a government office.

Who is a government money payment withholding agent? #

A government money payment withholding agent is any national government agency, government-owned or controlled corporation (GOCC), or local government unit (LGU) that pays a supplier for goods or services and must withhold tax before releasing the payment. This is a distinct withholding category from private top withholding agents, which are large private corporations designated by the BIR — government offices withhold as a matter of their status as government entities, not by separate BIR designation.

What income tax rate applies to government purchases? #

Government offices withhold 1% creditable withholding tax on purchases of goods and 2% on purchases of services, under Section 2.57.2(I) of RR No. 2-98, as amended by RR Nos. 11-2018, 7-2019, and 31-2020. These rates apply to local/resident suppliers and use their own ATC codes, distinct from the private-sector top-withholding-agent codes:

A single purchase of ₱10,000 or below is generally exempt from this withholding requirement under RR No. 2-98, though government accounting offices should confirm current thresholds against their own procurement rules before relying on the exemption.

What VAT withholding rate applies to government payments? #

Government offices also withhold 5% creditable VAT on payments to VAT-registered suppliers, using ATC WV010 for goods and WV020 for services. This withholding was a final tax before January 1, 2021 — meaning the supplier could not credit it — but Section 37 of the TRAIN Law (Republic Act No. 10963), implemented through Revenue Memorandum Circular No. 36-2021, converted it to a creditable withholding, aligning VAT treatment on government sales more closely with sales to private customers.

Under the creditable system, the supplier reports the full output VAT on the sale and credits the 5% withheld against that output VAT on its quarterly VAT return (BIR Form 2550Q), rather than treating the withheld amount as a final settlement of VAT liability — see VAT vs. Percentage Tax: Which Applies to Your Business? for how VAT-registered suppliers report output VAT generally.

Worked example: a supplier paid by a government agency #

Suppose a VAT-registered janitorial services company invoices a national government agency ₱200,000 plus 12% VAT (₱24,000), for a total invoice of ₱224,000. As a GMP withholding agent, the agency computes:

The agency issues two BIR Form 2307 certificates: one for the ₱4,000 income tax withheld under ATC WC157 (or WI157 for an individual supplier), and one for the ₱10,000 VAT withheld under ATC WV020. The supplier credits the ₱4,000 against its income tax due and the ₱10,000 against its output VAT for the quarter.

Frequently asked questions #

What is a government money payment (GMP) for BIR withholding purposes? #

A government money payment is any payment made by a national government agency, government-owned or controlled corporation (GOCC), or local government unit to a supplier of goods or services, on which the government office must withhold tax as a withholding agent before releasing payment.

What withholding tax rate applies to government purchases of goods and services? #

Under Revenue Regulations No. 2-98, as amended, government withholding agents withhold 1% creditable withholding tax on purchases of goods and 2% on purchases of services from local suppliers, using ATC WC640/WI640 for goods and WC157/WI157 for services.

Does the government also withhold VAT on payments to suppliers? #

Yes. Government offices withhold 5% creditable VAT on payments to VAT-registered suppliers, using ATC WV010 for goods and WV020 for services. This was a final withholding tax before January 1, 2021, and became creditable under Revenue Memorandum Circular No. 36-2021, implementing Section 37 of the TRAIN Law (Republic Act No. 10963).

Can both income tax and VAT be withheld on the same government payment? #

Yes. A VAT-registered supplier paid by a government office can have both the 1%/2% creditable income tax withheld and the 5% creditable VAT withheld on the same transaction, each evidenced by its own BIR Form 2307.

How does a supplier use the BIR Form 2307 received from a government office? #

The supplier credits the income tax withheld against its income tax due (BIR Form 1701 or 1702) and credits the VAT withheld against its output VAT on its quarterly VAT return (BIR Form 2550Q), attaching or referencing the certificates as support.

Summary #

Government money payments carry two withholdings, not one: a 1%/2% creditable income tax under RR No. 2-98’s government-specific ATC codes, and a 5% creditable VAT withholding under RMC No. 36-2021 — each documented on its own BIR Form 2307. A supplier dealing with government clients should expect two certificates per qualifying transaction and reconcile both against its income tax and VAT returns; see BIR Form 2307 Penalties for what happens when a withholding agent — government or private — gets an issuance wrong.