BIR Ruling

May 29, 1975 3rd Indorsement Respectfully returned to the Honorable, the Secretary of Finance, Manila, the herein Memorandum of the NACIDA Administrator dated November 13, 1974 requesting tax exemption of dressmaking and tailoring establishments registered with the NACIDA under the provisions of Republic Act No. 3470, as amended, with the following information. cdt In his memorandum the NACIDA Administrator argues that since the NACIDA law include among others, embroidery, dressmaking and tailoring industries within the coverage of the term "cottage industry", said establishments if duly registered with NACIDA should be exempt from fixed and percentage taxes. In support of his stand, he cited Opinion No. 130, series 1972 dated September 4, 1972 of the Secretary of Justice. In this connection, it may be stated that this Office has consistently ruled that although Section 11 of Republic Act No. 3470, as amended by Republic Act No. 5326 include dressmaking and tailoring industries as among the cottage industries registerable with the NACIDA, however, a dress shop or tailorshop which merely received orders from customers for the sewing of dresses, suit, pants barong tagalog, shirt or the like and charges fees for the service or labor of sewing is not a cottage industry within the purview of Republic Act No. 3470, as amended as said law, includes within its purview only those engaged in the production, manufacture and sale of cottage industry products. In other words, the law covers industries engaged in the production, manufacture and sale of things and not of services. The dress shops and tailorshops being subject to tax are engaged in the sale of services. (Please see attached BIR Ruling No. 72-001 dated January 19, 1972). As regards the contention that tax exemption of registered dress shops and tailorshops find support under Opinion No. 130 of the Secretary of Justice, it is noteworthy to state that the Secretary of Justice in his letter-opinion dated January 11, 1973, Opinion No. 8, series 1973, and in referring to Opinion No. 130-A, S. 1972 dated September 21, 1972, copies of which are hereto attached, has emphasized that Opinion No. 130, series 1972 is limited in application to "sub-contractors" registered as cottage industries with the NACIDA, who contract for the embroidery, dressmaking or tailoring of materials furnished them by contractors who sell or export the finished products, which was particularly the subject of the NACIDA Administrator's query on which the opinion was rendered. In view of the foregoing, this Office is adhering to its ruling that an ordinary tailor or dress shop although registered with the NACIDA, is not a cottage industry within the purview of Republic Act No. 3470, as amended, and therefore, is subject to the payment of fixed and percentage taxes. This stand is embodied in Revenue Memorandum Circular No. 55-74 dated September 18, 1974 of this Office published in the Finance Journal November 1974, pp. 16-17. (SGD.) MISAEL P. VERA Commissioner of Internal Revenue TAN 1601-593-5