BIR Ruling [DA-166-06]

March 27, 2006 BIR RULING [DA-166-06] Sec. 109 (K); Section 12, PD 87 Daniel Yaptangco Batasang Pambansa Complex Quezon City S i r : This refers to your letter dated December 8, 2005, requesting the opinion of this Office on the tax consequences of the "lechon" (roasted pig) business you plan to start. It is represented that you wish to engage in a lechon business venture; that it is the only product you will sell in this venture; and that, essentially, your operations will consist of roasting said lechon at your business location and delivering the same to wherever your customers wish it brought. In this regard, you now ask the following questions: 1. Will you have to register your business as a non-VAT or VAT company? 2. If the company is considered as non-VAT, will it be subject instead to percentage tax and if so, what will be the rate of such tax? SDHTEC 3. What are the taxes this business would be subject to in any case? To address your first query, please be informed that Section 236 (G) of the Tax Code of 1997, as amended by Republic Act (RA) No. 9337 provides that: "(G) Persons Required to Register for Value-added Tax. (1) Any person who, in the course of trade or business, sells, barters or exchanges goods or properties, or engages in the sale or exchange of services, shall be liable to register for Value-added tax if: (a) His gross sales or receipts for the past twelve (12) months, other than those that are exempt under section 109 (a) to (u), have exceeded One million five hundred thousand pesos (P1,500,000); or (b) There are reasonable grounds to believe that his gross sales or receipts for the next twelve (12) months, other than those that are exempt under Section 109(A) to (U), will exceed one million five hundred thousand pesos (P1,500,000)." SaITHC xxx xxx xxx Under the abovementioned provision, the requirement for VAT registration for businesses only applies to their gross VATable sales that have either exceeded the one million five hundred thousand pesos (P1,500,000) threshold or are expected to exceed this amount within the next twelve (12) months. However, as the sole product of your proposed venture involves lechon, a VAT-exempt food product under Section 109 (A) of the same Tax Code, you are not required to register your business as a VAT entity. With respect to your second query, Sections 109 (V) and 116 of the same Tax Code provide as follows: "SEC. 109. Exempt Transactions . (1) Subject to the provisions of subsection (2) hereof, the following transactions shall be exempt from the value-added tax: xxx xxx xxx (V) Sale or lease of goods or properties or the performance of services other than the transactions mentioned in the preceding paragraphs, the gross annual sales and/or receipts do not exceed the amount of One million five hundred thousand pesos (P1,500,000). Provided, That not later than January 31, 2009 and every three (3) years thereafter, the amount herein stated shall be adjusted to its present value using the Consumer Price Index as published by the National Statistics, Office (NSO) ; xxx xxx xxx "SEC. 116. Tax on Persons Exempt from Value-Added Tax (VAT). Any person whose sales or receipts are exempt under Section 109 (V) 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: caCSDT As can be seen from the foregoing provisions, any person whose gross, annual VATable sales do not exceed the one million five hundred thousand peso, (P1,500,000) threshold is subject to three percent (3%) percentage tax on his gross quarterly sales or receipts. However, Section 116 of the same Tax Code has no application to your proposed venture as it only applies to otherwise VATable sales that do not exceed the threshold of P1,500,000 under Section 109 (V). Thus, sales of lechon, being already exempt from VAT under Section 109 (A) of the same Tax Code, are not subject to percentage tax. Finally, as regards your third query, it is understood that you will be held subject to taxes imposed on income derived from your lechon business operations in accordance with Section 24 (A)(1)(a), or Section 27 (A), of the same Tax Code, as the case may be. It should also be understood that your lechon business shall be considered as a withholding agent for the government as regards your employees receiving compensation income subject to the withholding tax, under Section 79 (A), Chapter XIII, Title II of the Tax Code, as implemented by Revenue Regulations No. 2-98, as amended or if it makes income payments to individuals or corporations subject to the withholding tax under Revenue Regulations No. 2-98, as amended. (BIR Ruling No. S-30-008-2003 dated April 2, 2003) This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. caCSDT Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service