Exemption of Marginal Earners from Creditable Withholding Tax

The regulation amends prior withholding tax rules to exempt marginal income earners from creditable withholding tax on payments made by specified establishments.
The exemption applies specifically to income payments made to suppliers of agricultural products under the amended withholding rules in Section 2.
The regulation targets the withholding treatment for suppliers who meet the marginal income condition and are defined by reference to prior regulations.

The regulation amends Revenue Regulations No. 2-98, specifically Section 2.57.2(S).
The amendments are made “as last amended by Revenue Regulations No. 30-2003.”
The marginal income earners exemption uses a definition that **refers to Revenue Regulations 11-2000 dated December 12, 2000.
The regulation is framed under Section 244 of the Tax Code of 1997, in relation to Sections 57(A) and (B).

The regulation covers income payments made to suppliers of agricultural products that fall under Section 2.57.2(S) of Revenue Regulations No. 2-98, as amended.
The payors expressly include payments made by hotels, restaurants, resorts, caterers, food processors, canneries, supermarkets, livestock, poultry, fish and marine product dealers, hardwares, factories, furniture shops, and all other establishments.
The exemption applies only to payments to marginal income earners meeting the definition referenced in Revenue Regulations 11-2000 dated December 12, 2000.
The exclusion from the general rule applies to payments to marginal income earners that are not otherwise deriving compensation as an employee under an employee-employer relationship and are self-employed.

The regulation defines agricultural suppliers as suppliers/sellers of agricultural, forest and marine food and non food products, livestock and poultry of a kind generally used as, yielding or producing foods for human consumption; and breeding stock and genetic materials therefore.
“Livestock” includes cows, bulls and calves, pigs, sheep, goats and other animals similar thereto.
“Poultry” includes fowls, ducks, geese, turkey and others similar thereto.
“Marine products” includes fish and crustaceans, such as but not limited to eels, trout, lobsters, shrimps, prawns, oysters, mussels and clams, as well as shells and other aquatic products.
Marginal income earners (by referenced definition) are individuals not otherwise deriving compensation as an employee under an employee-employer relationship, who are self-employed and whose gross sales/receipts do not exceed PHP 100,000.00 during any 12-month period.

The amended Section 2.57.2(S) establishes the withholding treatment for income payments made to suppliers of agricultural products.
The general withholding regime applies through the rate stated in the amended provision: One percent (1%).
Payments made by the covered establishments to agricultural suppliers are treated as income payments subject to creditable withholding tax, except for payments to marginal income earners.
Payments to marginal income earners are exempt from creditable withholding tax when the recipients meet the referenced marginal income definition, including the PHP 100,000.00 gross sales/receipts limit during any 12-month period.
The exemption applies even though the payor is otherwise a covered establishment listed in the amended Section 2.57.2(S).

The regulation operates by further amending Section 2.57.2(S) of Revenue Regulations No. 2-98, as amended by prior issuances.
The operational trigger is the character of the recipient as an agricultural supplier and the character of the recipient as a marginal income earner.
The “marginal income earner” qualification is determined by the referenced rule under Revenue Regulations 11-2000 dated December 12, 2000.
The agricultural supplier meaning controls the classification of suppliers for purposes of applying the creditable withholding tax rule in Section 2.57.2(S).

Section 3 revokes, repeals, or amends all existing revenue regulations and other issuances or portions thereof that are inconsistent with the regulation.
Section 4 provides that the regulations retroact to January 1, 2004.
The regulation’s adoption date is January 14, 2004, while its effectivity for substantive application is governed by the retroactivity rule in Section 4.