BIR Ruling [DA-254-06]

April 12, 2006 BIR RULING [DA-254-06] Sections 109 & 116; VAT Ruling No. 037-01 Ms . Bella Flor C . Pastoriza, CPA Door 5, Velez Bldg., City Hall Drive San Pedro Street Davao City M a d a m : This refers to your letter dated July 21, 2005 requesting, in effect, for a ruling on whether or not your client, a non-vat and exempt taxpayer engaged in wholesale and distribution of agricultural products is required to pay the 3% percentage tax based on the total sales. As represented, your client, Ms. Evangeline A. Lao with business address at T. Monteverde St., Davao City, is registered as a non-vat and exempt taxpayer engaged in wholesale and distribution of coffee, cacao, rice and corn. She is also an exporter of agricultural products which include coffee and cacao, among others. In reply, please be informed that both the 10% value-added and 3% percentage taxes are taxes on the business transaction or activity. Both are indirect taxes which may be passed on or shifted to the customer who ultimately bears or assumes the burden of the tax. In VAT Ruling No. 037-2001 dated June 13, 2001, this Office had an occasion to rule that the 3% percentage tax prescribed under Section 116 of the Tax Code of 1997, as amended by R.A. No. 9337 does not apply to transactions exempt from the 10% VAT listed in Section 109(a) to (y) of the same Code as it applies only to transaction/s falling under item (z) of said section, to wit: "SEC. 109. Exempt Transactions . The following shall be exempt from the value-added tax: (a) . . . (b) . . . (c) Sale or importation of agricultural and marine food products in their original state, livestock and poultry of a kind generally used as, or yielding or producing foods for human consumption; and breeding stock and genetic materials therefor. Products classified under this paragraph and paragraph (a) shall be considered in their original state even if they have undergone the simple processes of preparation or preservation for the market, such as freezing, drying, slating, broiling, roasting, smoking or stripping. Polished and/or husked rice, corn grits, raw cane sugar and molasses, and ordinary salt shall be considered in their original state: xxx xxx xxx (z) 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 Five hundred fifty thousand pesos (P550,000): . . . ." "SEC. 116. Tax on Persons Exempt from Value-added Tax (VAT) . Any person whose sales or receipts 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." In view of the foregoing, your client's sale or importation of agricultural products in their original state is exempt from the 10% VAT pursuant to Section 109(c) of the Tax Code of 1997. Thus, it is likewise exempt from 3% percentage tax. 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 as null and void. Very truly yours, (SGD.) PABLO M. BASTES, JR. OIC-Head Revenue Executive Assistant Legal Service