BIR Ruling

October 19, 1972 The Regional Director Revenue Region No. 9 San Pablo City S i r : This refers to your letter dated October 2, 1972 regarding the request of Revenue District Officer Claro M. Silva of that Region for a ruling on the tax exemption granted to cottage industries registered under Republic Act No. 3470, as amended by' Republic Act No. 5326 and the requirement of the said law on employment of members of the family. In reply, you are informed as follows: Section 11 and 16 of Republic Act No. 3470, as amended by Republic Act No. 5326, otherwise known as the NACIDA LAW provides that a cottage industry must be an economic activity in small scale carried on mainly in the homes or in other places for profit and mainly done with the help of the members of the family with capitalization not exceeding P15,000.00. It is also required that the product or products manufactured, produced and sold are those enumerated in Section 11 of Republic Act No. 3470, as amended, and that 75% of the total cost of raw materials utilized in the production or manufacture of cottage industry products consists of raw materials of Philippine origin, except in cases of embroidery, piggery, poultry, livestock and metal craft industries where the latter requirement as to raw materials shall not apply. If the foregoing requirements are met, the businesses registered with the NACIDA shall enjoy the tax exemption provided by law. And to enjoy such exemptions, it is not necessary to secure the previous approval of the Commissioner of Internal Revenue. Pursuant to said Section 16 of said Republic Act No. 3470, as amended, the production, manufacture and sales of cottage industry products shall be exempt from all taxes except specific and income taxes, for a period of five years from the date of registration, provided that no exemption from the percentage taxes on sales shall be enjoyed by cottage industry for all sales in excess of P200,000.00 each year. As regards the requirement that the activity of a cottage industry should be done with the help of the members of the family, then Secretary of Justice Claudio Teehankee in his letter opinion date November 15, 1967 stated that although the statute speaks of an industry which is done mainly with the help of the members of the family, a cottage industry does not cease to be such the moment persons other than the immediate members of the family are employed, for there are instances in which an enterprising individual may have no family of his own, being still unmarried or childless, or because his children are still very young to help in their home industry. Yet, this fact alone should not operate to deprive the activity of the benefits of the law so long as it is a cottage industry in the judgment of the NACIDA. aisadc Very truly yours, MISAEL P. VERA Commissioner of Internal Revenue