Purchases by Manufacturer-Exporter of Raw Materials Cannot be Effectively Zero-rated for Failure to Export at Least 70% of Finished Products

August 4, 1994 BIR RULING NO. 122-94 RR-2-88 000-00 122-94 Pilipinas Kao, Inc. 108 A.E. Rodriguez Jr. Ave. Libis 1110, Quezon City Attention: Atty . Erotido L . Valdez Vice-President Gentlemen : This refers to your letter dated June 11, 1993, in effect, requesting for a ruling that although you failed to export at least 70% of your finished products in 1992 due to reasons which are beyond your control, you did not completely lose your privilege to claim the benefit of effective zero-rating on your purchases of raw materials under Revenue Regulations No. 2-88. It is represented that you are a VAT-registered manufacturer exporter of coco fatty alcohol; that although your export of said product from 1983 to 1991 exceeded 70% of your total annual production, in view of the strict implementation of Executive Order No. 259 requiring you to sell your products to local users/manufacturers in preference to foreign buyers, and because of the stiff foreign competition caused by the depressed economic conditions abroad, your export of finished products in 1992 fell to 61.39%. In reply, please be informed that under VAT Ruling No. RR 2-88-000-00-014-93 dated April 26, 1993, this Office ruled that a BOI-registered manufacturer exporter who failed to export at least 70% of its finished products for a limited period during a calendar year for reasons beyond their control, may still claim the benefit of effective zero-rating on its purchases of raw materials. After a restudy of said ruling however, it is our opinion that since you failed to export at least 70% of your finished products, your purchases of raw materials from local sources cannot be effectively zero-rated. The 70% export requirement for effective zero-rating prescribed under Revenue Regulations No. 2-88 should be consistently observed regardless of whether or not your inability to meet the same, results from voluntary or involuntary cause. This revokes BIR Ruling No. 014-93 dated April 26, 1993, which allowed the zero-rating of the manufacturer-exporters' purchases of raw materials even if it failed to export 70% of its finished products for causes beyond their control. cdt Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue