Agri-ing to simplify agricultural sales reporting

The long weekend provided me with a good opportunity to rest and recharge, which included an admittedly unhealthy amount of binge-watching. On one of my nightly Tiktok scrolls, I can’t help but go down a rabbit hole with these caterer-influencers—cooks and chefs who are engaged in the catering and cooking business. And while the delicious food prepared right on my screen was definitely a distraction to my self-imposed caloric deficit “diet”, I was also drawn to a lot of common comments made by other viewers— “Chef, bakit hindi kayo sa palengke bumili ng ingredients ninyo?” “Ang mahal naman kung sa supermarket bumili, Chef!” “Bakit hindi nalang sa palengke or sa farm bumili? Healthier and mas fresh pa doon.”

A fear of disallowance of expenses: the buyer’s tale

While these influencers may also prefer other conveniences such as parking and air conditioners offered by conventional supermarkets, these caterer-influencers, who are themselves taxpayers, may also prefer purchasing from supermarkets to comply with the invoicing requirements. Of course, it is an elementary rule in taxation that for expenses to be deductible for income tax and/or VAT purposes, such expenses must be duly substantiated with appropriate documentation. In case the seller is VAT-registered, then a VAT official receipt (OR) or sales invoice (SI) must be given to the buyer, who shall then present the same as part of the input VAT. After all, supermarkets are commonly equipped with point-of-sale systems, which dispenses the painstaking task of writing items bought in a manual OR.

Conversely, it may be said that these businesses prefer getting their supplies from supermarkets because most, if not the majority, agricultural producers fail to provide the proper invoices to these businesses. While agricultural products may come to them fresh daily, businesses risk possible disallowance of expenses from taxable income, absent the proper invoicing and substantiation. However, this may be bound to change with the issuance of Bureau of Internal Revenue (BIR) Revenue Regulations (RR) No. 12-2023 last October 2, 2023.

Remembering taxation rules and the response to agricultural producers

It is a general rule in taxation that when a sale or transfer of merchandise or service is rendered at P100.00 or more, the seller must register and issue its receipts and invoices with the BIR. In recent times, start-ups, including influencers, sole proprietorships, and general merchandise businesses, have become increasingly compliant with this requirement, as it has become indispensable during the initial registration process. However, the Commissioner of Internal Revenue may, in meritorious cases, exempt any person from compliance with the issuance of receipts or commercial invoices.

Admittedly, though, agricultural producers—individuals who are suppliers, producers, sellers, contract growers, and millers of agricultural food products, whose annual gross sales or receipts do not exceed P1 million—are one of the taxpayers who may be unable to comply with invoicing requirements. This may be attributable to several factors, such as the lack of compliance personnel. There may also be a lack of awareness of tax rules as these agricultural producers may concentrate their efforts on making the daily dime.

In line with the ease of doing business, the taxman has already exempted individual agricultural producers from the invoicing requirements under the Tax Code. Under Section 4 of RR No. 12-2023, the above category of agricultural producers has been exempted from the issuance of receipts or invoices, provided that their sales or receipts for the taxable year do not exceed P1 million and that sales of goods or services other than agricultural products do not exceed 30% of total sales during the year. Should the agricultural producers exceed such a threshold during the year, they are required to register receipts and invoices with the BIR.

The sale of agricultural food products shall include the sale in their original state of farm produce, livestock, poultry, marine products, ordinary salt, and agricultural inputs. Simple processes such as freezing, drying, salting, broiling, roasting, smoking, stripping, and other advanced technological means of packing such agricultural food products are also included within the purview of the sale of agricultural food products.

If not an official receipt, what then?

Agricultural producers, who are the sellers in this case, are not completely clear of any accountabilities from the BIR. They are still required to register a Simplified Sales Book which shall indicate the minimum information such as the date of transaction, description of goods sold or services rendered, taxpayer details of the purchaser engaged in business, amount of sales, taxes withheld, and the net amount received. This shall serve as the books of accounts of the agricultural producer.

The Simplified Sales Book shall be kept by the agricultural producers for a period of 10 years, with the first five years to be stored as a hard copy as a requirement.

On the other hand, buyers who are engaged in trade or business may find themselves at a loss as to what documentary evidence to keep as proof of purchase and deduction from income tax and/or VAT computations. However, as clarified by Section 9 of the RR, the buyer shall issue BIR Form 2304 if the payments made to the agricultural producers do not exceed P300,000.00 during the taxable year. If the payments exceed such amount, though, a withholding tax of one percent (1%) shall be made by the buyer, along with the issuance of the BIR Form 2307 and subsequent reporting to the withholding tax forms. In turn, the agricultural producer may claim.

A welcome aid for agricultural producers

In recent times, the country has been embattled with numerous agricultural problems, such as the outbreaks and persistence of the African Swine Fever, difficulty of local food production in keeping up with the rise in population, climate change and other supply chain disruptions. The effectivity of RR No. 12-2023 on October 19, 2023, as well as the installation of a new agriculture secretary last week, may be seen as a welcome development and aid to farmers and fisherfolk.

There are still gaps in taxation that need remediation by tax authorities and taxpayers alike. For agricultural producers, for example, there are still some who are unaware of their rights and obligations as taxpayers. For now, we leave the agricultural woes of farmers and fisherfolk to our leaders, but as buyers and consumers, we may hit two birds with one stone by spreading taxation literacy to our farmers every time we transact with them under the new BIR regulations while buying local agricultural products.

As published in Mindanao Times, dated 19 November 2023