JP Capanas Law Office

November 10, 2008 BIR RULING [DA-(C-125) 404-08] Sec. 111 (B) of RR #16-2005 JP Capanas Law Office Rm. 123 Camp Zubu, Ylaya Talamban, Cebu City Attention: Jonathan P. Capanas CPA-Lawyer Gentlemen : This refers to your undated letter in behalf of your client, Philippine Agriculture Land Development and Mills, Inc. (PALM, Inc., for short), requesting confirmation of your opinion that PALM, Inc. is entitled to the four percent (4%) presumptive input tax, being a manufacturer of palm cooking oil pursuant to Section 111 (B) of Revenue Regulations No. 16-2005, as amended. It is represented that PALM, Inc. is a corporation duly organized and existing under and by virtue of Philippine laws with Securities and Exchange Commission Registration Certificate No. A 199919744 issued on January 10, 2000; that it has its principal business address at the 4/F FCB Main Bldg., CPG Avenue, Tagbilaran City, Bohol, Philippines; that PALM, Inc.'s primary purpose is to engage in, operate, conduct and maintain the business of manufacturing, importing, exporting, buying, selling or otherwise dealing in, at wholesale such goods as palm oil and all kinds of vegetable oils, palm oil fruits and vegetable oil crops and other goods of like nature, and any and all equipment, materials, supplies used or employed in or related to the manufacture of such finished products; that the raw materials or primary agricultural products are the fresh fruit bunches supplied by the anchor plantations owned by another company, the farmers and cooperatives who availed the outgrowership program of PALM, Inc. and independent palm oil farmers; that the farmers and cooperatives who availed the outgrowership program who are substantial suppliers or raw materials fresh fruit bunches have existing contracts with PALM, Inc. wherein the latter guarantees to accept all the fresh fruit bunches produced by the farmers and cooperatives; that the buying price per ton of fresh fruit bunches is benchmarked against the prevailing market price of Crude Palm Oil (CPO) and Palm Kernel (PK) at the time the fresh fruit bunches are delivered; that it is your contention that PALM, Inc. is entitled to claim for presumptive input on the ground that purchases of fresh fruit bunches from farmers are not subject to VAT, hence, PALM, Inc. is not recognizing an input VAT; and that, however, crude Palm Oil and Palm Kernel are subjected to output VAT of 12% but the input VAT deduction is very minimal considering that the cost of raw materials represents 91.30% of the total cost of goods manufactured or cost of sales; In reply, please be informed as follows: Section 111 (B) of Revenue Regulations No. 16-2005, as amended, provides, to quote: "Sec. 4.111-1. Transitional/Presumptive Input Tax Credits. (a) . . . (b) Presumptive Input Tax Credits Persons or firms engaged in the processing of sardines, mackerel, and milk, and in manufacturing refined sugar, cooking oil and packed noodle-based instant meals, shall be allowed a presumptive input tax, creditable against the output tax, equivalent to four percent (4%) of the gross value in money of their purchases of primary agricultural products which are used as inputs to their production." TaHIDS As used in this paragraph, the term processing shall mean pasteurization, canning and activities which through physical or chemical process alter the exterior texture or form or inner substance of a product in such manner as to prepare it for special use to which it could not have been in its original form or condition. Accordingly, inasmuch as PALM, Inc. is a manufacturer of Palm cooking oil, it is entitled to the 4% presumptive input tax as provided under the above-cited provision. 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. Very truly yours, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service