BIR Ruling [DA-051-03]

February 21, 2003 BIR RULING [DA-051-03] Ms. Leonor Mangali 57 Celia St., Bayan-Bayanan Malabon City M a d a m : This refers to your letter dated June 26, 2002 requesting clarification as to what kind of taxes should fish brokers be subjected to. It is represented that fish brokers are sellers or distributors of fish, wherein 2-3% out of the total sales are given to them by the fish dealers, in payment of the services rendered. Based on these facts, you want to be clarified on the following issues: 1. Are the fish brokers subject to VAT, notwithstanding the fact that they also sell the fish in its original state and the payment is in the form of commission? 2. What other taxes can these brokers be subjected to? In reply thereto, please be informed as follows: 1. As a rule, a person is subject to value-added tax if he sells or leases goods, properties or services subject to VAT in the course of trade or business or he imports goods or properties, whether or not in the course of trade or business (Sec. 6(a) Rev. Regs. No. 6-97). Fish brokers perform service for fish dealers to sell fish and they are paid a commission of 2-3% of the total sales. Therefore, the services rendered by the fish brokers are in the course of their trade or business. Accordingly, if the gross receipts of these fish brokers exceed the amount of P550,000.00 in any 12-month period they must register in accordance with Section 236(A) of the Tax Code. In addition, they shall pay of the annual registration fee prescribed within ten (10) days after the end of the last month of that period, and shall be liable to the value-added tax commencing from the first day of the month following their registration (Sec. 236 (H), NIRC). EcHIDT On the other hand, if the gross annual receipts of these fish brokers do not exceed the amount of P550,000.00, they shall not be subject to value-added tax pursuant to Section 109(z) of the Tax Code but to the percentage tax imposed under Section 116 of the Tax Code, which provides: Section 116. Tax on persons exempt from Value-Added Tax (VAT). Any person whose sales are exempt under Section 109(z) of this Code from the payment of value-added tax and who is not a VAT-registered person shall pay a tax equivalent to three percent (3%) of his gross quarterly sales or receipts: Provided , That cooperatives shall be exempt from the three percent (3%) gross receipts tax herein imposed. It is noteworthy to state here that what is being taxed is the service rendered or the contractual relationship between the fish brokers and the fish dealers and not the selling of fish itself. The selling of fish in its original state is exempt from the value-added tax. 2. In addition, they will also be subject to income tax as provided under Section 24 of the same Code, viz. : Section 24. Income Tax Rates . (A) Rates of Income Tax on Individual Citizen and Individual Resident Alien of the Philippines. (1) An income tax is hereby imposed: (a) On the taxable income defined in Section 31 of this Code, other than income subject to tax under Subsections (B), (C) and (D) of this Section, derived for each taxable year from all sources within and without the Philippines by every individual citizen of the Philippines residing therein; xxx xxx xxx Since these brokers earned their income through the selling of fish in Navotas-Malabon area, it is the considered view of this Office that they are also subject to income tax by virtue of the provision of the law abovementioned. aATEDS However, if these fish brokers are organized as a corporation, an income tax of zero (0) to thirty two percent (32%) will be imposed upon the taxable income derived during each taxable year pursuant to Section 27(A) of the National Internal Revenue Code of 1997. Very truly yours, (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group