Do You Withhold Tax on Payments to Poultry or Livestock Contract Growers? BIR Form 2307 Explained

When a poultry or hog integrator pays a contract grower a growing fee, that payment is for a service — raising animals the integrator still owns — not a purchase of agricultural goods, so it does not qualify for the agricultural-products withholding exemption. It falls instead under the same “certain contractors” expanded withholding tax rule that applies to any other service contractor: 2% creditable withholding tax, ATC WI120 (individual grower) or WC120 (corporate growing operation), reported on BIR Form 2307.

This guide is part of the BIR Form 2307 series. It builds on Do You Withhold Tax When Buying Agricultural, Marine, or Forest Products? The Top Withholding Agent Exemption and BIR Form 2307 for Contractors and Subcontractors, and addresses a scenario that trips up a lot of agribusiness bookkeepers: growing fees look like “agricultural” payments on paper, but they don’t get the agricultural-goods treatment.

What is a contract growing arrangement, and who owns the animals? #

In a typical broiler or hog contract growing arrangement, an integrator — a large poultry or livestock company — supplies the day-old chicks or piglets, feed, medicines, and technical supervision, while a contract grower provides the housing, labor, utilities, and day-to-day care. The integrator retains ownership of the animals from placement through harvest; the grower never buys or sells the birds or livestock. At the end of the growing cycle, the integrator pays the grower a fee, usually computed per kilogram of live weight delivered and adjusted by a feed-conversion or mortality performance index. Because the grower is compensated for labor and facilities rather than for animals it owned and sold, the transaction is legally and economically a service contract, not a sale of agricultural goods.

Why the agricultural-goods withholding exemption doesn’t apply to the growing fee #

Revenue Regulations (RR) No. 11-2018 excludes agricultural, forest, and marine food products in their original state — including livestock and poultry — from the definition of “goods” subject to the Top Withholding Agent’s 1% withholding rule, but that exemption is built around a sale: a supplier who owns the animals and sells them. A contract grower doesn’t fit that definition because it never holds title to the birds or livestock it raises — the integrator does, throughout the entire arrangement. With no sale of an agricultural product to exempt, the growing fee falls back into the general expanded withholding tax rules for services.

That the growing arrangement is a service, not a goods sale, is also how the National Internal Revenue Code (NIRC) itself classifies it — for VAT purposes, Section 109(1) lists as VAT-exempt:

“Services by agricultural contract growers and milling for others of palay into rice, corn into grits and sugar cane into raw sugar”

Revenue Memorandum Circular (RMC) No. 97-2010 confirms this VAT exemption specifically for agricultural contract growers raising poultry, livestock, and other animals for integrators. The VAT treatment and the income tax withholding treatment are separate questions under separate provisions, but they agree on the underlying fact: contract growing is a service, and that classification is exactly why the agricultural-goods withholding exemption — written for sales of animals in their original state — doesn’t reach it.

What ATC and rate apply to a contract grower’s fee #

Once the growing fee is correctly identified as a service payment, it falls under Section 2.57.2(E) of RR No. 2-98, as amended by RR No. 11-2018 — the same “income payments to certain contractors” category used for construction subcontractors, security agencies, and other service providers — at 2% creditable withholding tax. The integrator, as a BIR-registered juridical person, is a withholding agent on this payment regardless of whether it separately qualifies as a Top Withholding Agent, because withholding-agent status for contractor-type payments attaches to juridical persons generally.

The last row is the contrast that matters: an integrator that simply buys live birds outright from a raiser who owns them does not withhold under the Top Withholding Agent goods rule, because that purchase is excluded agricultural goods. The same integrator paying a contract grower’s fee withholds 2%, because that payment is for a service, not a purchase.

Worked example: a broiler contract growing cycle #

A concrete cycle shows how the numbers flow. GrowFast Poultry Corp. (fictional, for illustration) places 10,000 day-old chicks with an individual contract grower, Mang Tomas, supplying all feed and medicine and retaining ownership of the flock throughout the 30-day cycle. At harvest, the flock delivers 18,000 kilograms of live weight, and the contract rate is ₱8.50 per kilogram:

• Gross growing fee: 18,000 kg × ₱8.50 = ₱153,000
• Grower type: individual, non-VAT-registered → ATC WI120
• Creditable withholding tax: 2% × ₱153,000 = ₱3,060
• Net amount paid to Mang Tomas: ₱153,000 − ₱3,060 = ₱149,940

GrowFast remits the ₱3,060 through BIR Form 0619-E (monthly) and BIR Form 1601-EQ (quarterly), reports the payment on its Quarterly Alphalist of Payees, and issues Mang Tomas a BIR Form 2307 showing ₱153,000 as the income payment, ATC WI120, and ₱3,060 withheld. Mang Tomas uses that certificate to credit the ₱3,060 against his own income tax due for the quarter. If Mang Tomas instead operated the growing farm through a registered corporation, the same 2% rate would apply under ATC WC120 instead of WI120 — the rate doesn’t change, only the individual-versus-corporate code does.

Frequently Asked Questions #

Does an integrator withhold tax on the growing fee paid to a contract poultry or hog grower? #

Yes. The growing fee is a payment for a service — raising birds or livestock the integrator still owns — not a purchase of agricultural goods, so it falls under the expanded withholding tax rules for certain contractors under Revenue Regulations No. 2-98, as amended, and is subject to 2% creditable withholding tax and a BIR Form 2307 certificate.

Why doesn’t the agricultural products withholding exemption cover a contract grower’s fee? #

The agricultural-goods exemption under Revenue Regulations No. 11-2018 applies to purchases of livestock, poultry, and other agricultural products in their original state from a supplier who owns and sells them. A contract grower never owns the birds or animals — the integrator retains title throughout — so there is no sale of goods to exempt; the grower is paid for a growing service instead.

What ATC and rate apply to a contract growing fee? #

The growing fee uses the same ATC codes as any other contractor payment: WI120 for an individual grower or WC120 for a corporate growing operation, both at 2% creditable withholding tax, under Section 2.57.2(E) of Revenue Regulations No. 2-98 as amended by Revenue Regulations No. 11-2018.

Is a contract growing arrangement the same as buying live chickens or hogs from a raiser? #

No. Buying live chickens or hogs outright from an independent raiser who owns the animals is a purchase of agricultural products in original state, excluded from the Top Withholding Agent 1% goods rule. A contract growing arrangement is structurally different: the integrator supplies the day-old chicks or piglets, feed, and medicines, retains ownership throughout, and pays the grower a service fee for labor and facilities.

Does the contract grower need to be VAT-registered for the withholding to apply? #

No. Creditable withholding tax on the growing fee applies regardless of the grower’s VAT status, because it is an income tax withholding rule, not a VAT rule. Separately, Revenue Memorandum Circular No. 97-2010 confirms that the grower’s own service — the act of contract growing — is itself VAT-exempt under Section 109 of the National Internal Revenue Code, which is a different question from whether income tax is withheld on the fee.

Summary #

A poultry or livestock contract grower is paid for a service — raising animals the integrator owns from placement to harvest — not for a sale of agricultural goods, which is why the RR No. 11-2018 agricultural-products exemption does not apply to the growing fee. Instead, the fee is withheld at 2% under the same “certain contractors” rule (ATC WI120 for individuals, WC120 for corporations) that covers other service contractors, and reported on BIR Form 2307. Integrators should keep the distinction documented — who owns the animals, and whether the payment is for a sale or a service — since that single fact determines which withholding rule applies. For the goods-side exemption this contrasts with, see the agricultural products TWA exemption guide; for the general contractor withholding rules this fee follows, see BIR Form 2307 for Contractors and Subcontractors.