BIR Ruling

November 4, 1975 Manila Barong Center 410 Plaza Ferguson, Ermita Manila Attention: Mr . Sidney Schwarzkopf Manager Gentlemen : This refers to your letter dated October 17, 1975 requesting clarification on the tax exemption privilege granted to cottage industries registered with the NACIDA under Republic Act No. 3470, as amended by Republic Act No. 5326. cd It appears that your firm is a tailoring and embroidery industry registered with the NACIDA under Certificate of Registration No. 29662 dated August 29, 1975. In reply, I have the honor to inform you that pursuant to Section 16 of Republic Act No. 3470, as amended by Republic Act No. 5326, 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 be enjoyed by cottage industry for all sales in excess of P200,000.00 each year. In this connection, it may be stated in the case of the tailoring business, this Office has already ruled that, although Section 11 of said Republic Act No. 3470, as amended, includes tailoring industries as among the cottage industries registerable with the NACIDA, however, a tailoring which merely receives orders from customers for the sewing of 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. (BIR Ruling No. 72-001 dated January 19, 1972) In view thereof, if, in the pursuit of your tailoring and embroidery industry, you merely receive orders from customers for the sewing of barong tagalog or rendering service of embroidery, and charge fees therefor, you are engaged in the sale of services, in which case, you are subject to the payment of the fixed tax of P50.00 and the 3% contractor's tax imposed in Sections 182(A)(1) and 191(II), both of the Tax Code. Very truly yours, (SGD.) EFREN I. PLANA Acting Commissioner of Internal Revenue TAN 1456-040-3