Taxability of Small Scale Mining by Extraction of White Clay Bentonite Ore Being Supplied to the Local Market as Raw Material

January 17, 1991 BIR RULING NO. 007-91 100 (a) 151 (a) (b) 007-91 Gentlemen : This refers to your letter dated July 3, 1990 stating that you are engaged in small scale mining by the extraction of white clay bentonite ore which you supply to the local market as raw material; that the said white clay bentonite ore is sold as is after extraction without changing its character and composition except by chopping them into smaller pieces with the use of picks and shovels prior to bagging them in plastic bags. Under the foregoing facts, you want to know what taxes you are liable to pay, aside from income tax, for the year 1987 and starting January 1, 1988. In reply, please be informed that Section 151 (b)(2) of the Tax Code defines "mineral" to mean all naturally occurring inorganic substances (found in nature) whether in solid, liquid, gaseous or any intermediate state. Since bentonite is an aluminum silicate material composed of several clay minerals, mostly montmorillonite (Encyclopedia Americana, Vol. 3, Page 564), the same is considered a non-metallic mineral. Accordingly, for the year 1987, you are subject to the royalty tax of 3% based on the actual market value of the annual gross output thereof at the time of removal, pursuant to then Section 216(b)(2) of the Tax Code, as amended by B.P. Blg. 84. However, starting January 1, 1988, you became subject to excise tax at the same rate of 3% based on the actual market value of the annual gross output thereof at the time of removal under Section 151(a)(2) of the Tax Code, as amended by E.O. No. 273. By selling the said white clay bentonite ore as is after extraction, you are engaged in the sale of goods and, hence, subject to 10% VAT under Section 100(a) of the same Code. (Section 126, Tax Code) aisadc Very truly yours, (SGD.) JOSE U. ONG Commissioner