Taxpayers as top withholding agents
By: Atty. Lew Earvin H. Manarin on April 16, 2026
TAXES are rarely simple. But the withholding tax mechanism reflects a clear and practical policy choice: collect income tax at source before it is lost to non-compliance.
For taxpayers, this system is important in determining whether they have been designated as Top Withholding Agents (TWAs), a classification that deputizes them to act as collection agents of the government.
Withholding tax is not a separate tax, but a method of collecting income tax in advance. As the Supreme Court had explained, it serves three purposes: to provide taxpayers with a convenient way to meet their obligations; to ensure that taxes are actually collected; and to improve government cash flow.
The result is a more efficient system with fewer delinquencies and less reliance on enforcement.
Under Revenue Regulations (RR) 11-2018, TWAs include not only large taxpayers and previously identified top corporations and individuals, but also medium taxpayers and those under the Taxpayer Account Management Program (TAMP).
The regulation also clarified how taxpayers are notified of their classification. Publication in a newspaper of general circulation, often supplemented by posting on the BIR website, constitutes sufficient legal notice. The obligation to withhold begins on the first day of the month following such publication, regardless of whether a separate written notice is received.
This evolved under RR 7-2019, which shifted from fixed classifications to objective financial thresholds. Taxpayers whose gross sales, receipts, purchases, or claimed itemized deductions reached at least P12 million in the preceding year could be classified as TWAs.
RR 31-2020 refined this approach by aligning TWA classification with Revenue District Office (RDO) groupings under Revenue Memorandum Order 13-2018. Taxpayers under Groups A and B are subject to a P12 million threshold, while those under Groups C, D, and E are subject to a lower P5 million threshold. This reflects the BIR’s broader segmentation of taxpayers based on size and activity.
Once classified, TWAs must withhold 1 percent on purchases of goods and 2 percent on purchases of services from local or resident suppliers, including non-resident aliens engaged in trade or business in the Philippines. These obligations apply to regular and casual suppliers.
As a rule, a single or isolated transaction is subject to withholding only if it reaches P10,000. A regular supplier is one with whom the taxpayer has had at least six transactions, regardless of amount, within the current or preceding year.
When the obligation arises
It is also important to understand when the obligation arises. A taxpayer does not become liable to withhold simply by exceeding the threshold. The obligation starts only upon official publication by the BIR of the list of TWAs. Once included, a taxpayer remains classified until formally delisted, which likewise requires publication.
Recent jurisprudence underscores this rule. In a case before the Court of Tax Appeals (CTA), a taxpayer argued that he was not liable for withholding taxes because he did not receive a written notice of his classification from the BIR.
The CTA rejected this argument, saying that RR 11-2018 had replaced the requirement of individual notice with a publication-based system. The court found that the taxpayer’s inclusion in a published list, which was also accessible on the BIR website, was sufficient notice. The obligation to withhold was deemed to have commenced on the first day of the month following publication, and the assessment was upheld.
Beyond classification, timing is likewise a critical compliance issue. The Ease of Paying Taxes (EOPT) Act streamlined the rules on when withholding must be made. Under the old system, multiple reckoning points existed, including payment, accrual, or when the income became payable, whichever came first. This often created complexity where accounting recognition and payment cycles did not align.
The EOPT Act simplified the rule by anchoring withholding to when income becomes “payable,” or when the obligation is due, demandable, or legally enforceable. RR 4-2024 clarified that withholding arises upon accrual or recording of the expense in the payor’s books, or upon the supplier’s issuance of a sales invoice or similar document, whichever comes first. Actual payment is no longer the controlling trigger.
In this regard, the EOPT Act also repealed the “no withholding, no deduction” rule under Section 34(K) of the Tax Code. Under the prior rule, expenses subject to withholding tax could only be claimed as deductions if the corresponding withholding tax had been remitted to the BIR. With its repeal, as implemented by RR 4-2024, such expenses may now be claimed as deductions even if no tax was withheld.
However, two important points must be made. First, the repeal affects only the deductibility of expenses. The obligation to withhold and remit taxes on covered income payments remains fully in force. Second, the BIR has clarified through Revenue Memorandum Circular 60-2024 that the repeal applies only to taxable years beginning Jan. 1, 2024.
Lew Earvin H. Manarin is an Associate of Mata-Perez, Tamayo & Francisco (MTF Counsel). This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. If you have any question or comment regarding this article, you may email the author at info@mtfcounsel.com or visit MTF website at www.mtfcounsel.com
The article was published at the More to Follow Column at The Manila Times on April 16, 2026. Please see this link.
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