BIR Ruling

June 27, 1972 Mr. Ronnie L. Masangcay Odiongan, Romblon S i r : This refers to your letter dated December 19, 1971 requesting reconsideration of the assessment contained in our Letter of Demand No. 11407-69 dated September 10, 1970, involving the amount of P467.99 as fixed and percentage taxes for the year 1969; and withdrawal of the Warrant of Distraint & Levy dated December 13, 1971 issued against you. cd Investigation disclosed that you are engaged in bakery business; that you are registered with the Nacida as a cottage industry sometime on April 1, 1969 under the term "food preservation"; that as bakery owner, you have been paying your percentage taxes during the first months of 1969 or until your registration with the NACIDA; that the employees working with you are not members of the family; that the raw materials used in your business are mostly imported flours; that your business is purely bread making and not food preservation; and that your capitalization is P4,861.00. In reply, I regret to inform you that your request cannot be granted for lack of legal basis. While Section 11 of R.A. 5326 includes food preservation as among the cottage industries registerable with the NACIDA., a bakery although registered with the NACIDA is not a cottage industry falling within the purview of Republic Act No. 3470, as amended. A bakery involves essentially the manufacture or baking of bread and cannot be, classified as food preservation enumerated under Section 11(18) of Republic Act No. 3470, as amended. Moreover, a bakery in operation uses mostly and principally as its raw material flours which are of foreign origin. Pursuant to Section 16 of Republic Act No. 3470, as amended by Republic Act No. 5326, the production, manufacture and sale 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 of the person or firm engaged in the production or manufacture of cottage industry products with the Board, provided that seventy-five per cent of the total cost of raw materials utilized in the production or manufacture of cottage industry products consists of raw materials of Philippine origin. In view thereof, it is requested that you pay the amount of P467.99 as fixed and percentage taxes and surcharge within ten (10) days from your receipt hereof; otherwise, the collection thereof will be enforced by distraint and levy. Very truly yours, MISAEL P. VERA Commissioner of Internal Revenue