Smectite Clay Subject to 3% Tax

May 5, 1993 BIR RULING NO. 192-93 SMECTITE CLAY SUBJECT TO 3% TAX 100 (a) 244-90 192-93 Emaco, Inc. No. 5 Madison Street New Manila, Quezon City Attention: Mr . Federico A . Sibal Corporate Secretary This refers to your letter dated November 20, 1992, stating that you are a company engaged in the business of mineral extraction; that at present, you are developing a mine in Mindanao, containing smectite clay which can be used among others, in the formulation of animal and poultry feeds; and that you plan to put the said mine into commercial operation in 1993. cdtech Based on the foregoing, you are requesting for clarification from this Office regarding your tax liability as producer/extractor of smectite clay and that of the marketing company that will distribute the product (smectite clay) to different animal and poultry industries. In reply, please be informed that clay indubitably falls under the definition of quarry resources; hence, as producer/extractor of smectite clay, you are subject to a tax of 3% based on the actual market value of the annual gross output thereof at the time of removal, pursuant to Section 151(a)(2) of the Tax Code, as amended by Executive Order No. 311. On the other hand, the company that will distribute the smectite clay to various animal and poultry industries to be used as ingredients in the formulation of animal and poultry feeds is subject to 10% VAT as provided for under Section 100(a) of the Tax Code, as amended by Executive Order No. 273. This is so, because only animal or poultry feeds as "finished products" qualifies for VAT exemption under Section 103(c) of the Tax Code, but not those which are intended as supplement or ingredients in animal feeds (VAT Ruling No. 244-90). VICTOR A. DEOFERIO, JR. Deputy Commissioner of Internal Revenue