BIR Ruling [DA-363-03]

October 13, 2003 BIR RULING [DA-363-03] VAT Ruling No. 088-99 RR 7-89 Philfoodex Room 305 Bahay ng Alumni Pres. Ramon Magsaysay Avenue U.P. Campus, Diliman Quezon City Attention: Jesus T. Tanchangco, Sr. President Gentlemen : This refers to your letter dated September 16, 2003 requesting for renewal of your exemption from the payment of advance VAT on the sale of refined sugar, which tax is presently collected by the sugar mills. It is represented that Philfoodex is the largest organization of food processors and exporters in the Philippines; that for the past several years, PHILFOODEX has been actively promoting exports of processed food; that with the trade liberalization policies imposed by the World Bank and GATT of the WTO, the sugar industry is among the sectors most affected; that as the country is increasingly flooded with a continuing influx of imported food items, most of them sugar-based, the need to help the organization of food processors and exporters to become globally competitive, the government through the Sugar Regulatory Administration (SRA) has came up with the B1 program which allowed one percent (1%) of sugar production for Crop Year 1998-1999 as "B-1" or processors'/exporters sugar (raw sugar) to be sold exclusively to PHILFOODEX to provide it cheaper sugar and enable the members thereof to remain competitive in the world market; that however, majority of food manufacturers who bought the raw sugar require that the same be turned into refined sugar to make it suitable to their products, hence, it is necessary to have such "B-1" sugar refined by the different sugar mills; that you avail of the tolling and other services provided by sugar mills for the purpose of processing the raw sugar allocation into refined sugar; that since B1 sugar are owned by food processors/exporters and are intended for their food manufacturing purposes and not for re-sale, the advance VAT on the sale of refined sugar being collected by the sugar mills shall not apply to them; and that on the foregoing bases, your exemption from the payment of advance VAT imposed on the sale of refined sugar has been confirmed by the Bureau of Internal Revenue in VAT Ruling No. 088-99 dated August 16, 1999. In this regard, you now request for the renewal of your exemption to the effect that PHILFOODEX be exempted from the payment of the advance VAT on the sale of refined sugar which is presently being collected by the mills, on account of the fact that the "B-1" sugar allocated to food processors will not be resold but will be directly used for food manufacturing products. cDEICH In reply, please be advised that this Office hereby reiterates its previous ruling on the matter to the effect that your exemption from payment of advance value-added tax (VAT) on the sale of refined sugar is prescribed under Sec. 3 of Revenue Regulations No. 7-89, to wit: "Section 3. Requirement to pay in advance VAT on sale of refined sugar . The value-added tax on sale of refined sugar shall be paid in advance by the owner/seller to the Bureau of Internal Revenue (BIR), thru the sugar refinery. The advance payment shall be made prior to or upon issuance of the refined sugar release order (RSRO) or similar instruments." Clearly, the sugar refinery is constituted as a withholding agent and collects the VAT in advance from the intended recipient/owner in connection with the sale of refined sugar, that is, prior to its withdrawal from the refinery. Inasmuch as PHILFOODEX, under a toll milling arrangement, will have their allocated B-1 sugar milled not for the purpose of reselling the refined product but for direct consumption in food manufacturing process as ingredient in Philippine food products for export, then this Office may recognize the non-application of the advance VAT payment for the withdrawal of refined sugar. Likewise, since as represented, members of PHILFOODEX are engaged in the export of food products, then said activity may be either exempt or subject to zero percent VAT, thus not resulting in any output tax against which any advance payment of VAT can be credited against. Accordingly, your request for the exemption therefrom is hereby confirmed and this ruling shall serve as the authority for the concerned sugar mill not to collect advance VAT from PHILFOODEX. It must be understood, however, that the toll milling arrangement is subject to VAT. ( VAT Ruling No. 030-2003 dated June 23, 2003 ) The actual withdrawal of refined sugar without pre-payment of VAT shall be undertaken through PHILFOODEX and evidenced by the corresponding "B-1" quedan-permits issued/allocated to members thereof who are principally engaged in the business of processing sugar-based food products for export. This ruling is being issued on the basis of the foregoing facts as represented. If it is subsequently found that the facts are different, then this ruling shall be considered null and void. IcHAaS Very truly yours, (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group