Revocation of VAT Ruling No. 080-88 Exempting Refined Sugar from VAT

August 29, 1989 September 1, 1989 REVENUE MEMORANDUM CIRCULAR NO. 55-89 SUBJECT : Revocation of VAT Ruling No. 080-88 Exempting Refined Sugar from VAT TO : All Internal Revenue Officers and Others Concerned Quoted hereunder is the full text of the Memorandum dated May 5, 1989 of this Office duly approved by the Secretary of Finance revoking the exemption of refined sugar from the VAT. "May 5, 1989 "MEMORANDUM FOR: The Secretary of Finance RE: REFINED SUGAR "This refers to VAT Ruling No. 080-88 as enunciated in your duly approved Memorandum of former Commissioner of Internal Revenue, Bienvenido A. Tan, Jr. dated February 18, 1988 granting the request of the National Sugar Refineries Corporation for reconsideration of the administrative interpretation of the term "raw cane sugar" as contemplated under Section 103(b) of the Tax Code as amended by E.O. No. 273 to include all kinds of sugar including what is commonly known as "refined sugar". "Under Section 103(h) of the Tax Code, pertinent portion of which reads: "Sec. 103. Exempt Transactions, The following shall be exempt from the value-added tax: xxx xxx xxx (b) Sale or importation in their original state of agricultural and marine food products; livestock and poultry of a kind generally used as, or yielding or producing food for human consumption; and breeding stock and genetic materials therefor . Products classified under this paragraph and paragraph (a) shall be considered in their original state even if they have undergone the simple processes of preparation or preservation for the market, such as freezing, drying, salting, smoking or stripping. Polished and/or husked rice, corn grits and raw cane sugar shall be considered in their original state for purposes of this paragraph . only raw cane sugar is considered in its original state for purposes of the exemption from VAT. If the law intended to exempt the refined sugar from VAT, it would have so stated. The term "raw cane sugar" is defined in Section 9(b)(2) of Revenue Regulations No. 5-87 as follows: 'Raw cane sugar refers to the crystalized or solidified juice of sugar cane through a milling process, short of the process of being refined, without any addition of chemicals, resulting in muscovado or granulated sugar. It does not include refined sugar, molasses or bagasse.' "That raw cane sugar is indeed different from refined sugar for tax purposes is recognized even prior to the VAT law. Both commodities were separately subject to the miller's tax. Under then Section 168 of the Tax Code (before the VAT), refined sugar is subject to the miller's tax, but any miller's tax paid on the raw sugar shall be credited against the tax due on the refined sugar. This is probably the reason why only the raw cane sugar is exempt from VAT while refined sugar was being subjected to VAT. "In fact, the aforesaid approved Memorandum of former Commissioner Tan mentions the common perception that raw sugar and refined sugar are basically different from each other but states further that 'refined sugar is just a purer form of raw sugar without any chemical change, without the addition of any chemical substance and without any change in physical characteristics except color'; hence, refined sugar has since then been included within the term 'raw cane sugar', which the law considers in its original state for purposes of the exemption from VAT. "It is submitted that the above interpretation clearly violates the rule of statutory construction governing tax exemptions. aisa dc 'Exemptions from taxation are highly disfavored in law; and he who claims an exemption must be able to justify his claim by the clearest grant of organic or statute law. An exemption from the common burden cannot be permitted to exist upon vague implications.' (Asiatic Petroleum Co. vs. Llames, 49 Phil. 466) "Exemptions are regarded as in derogation of sovereign authority and of common right and are construed strictissimi juris against the person or entity claiming exemption. "Accordingly, since under the law, only raw cane sugar is exempt from VAT and the fact that the raw cane sugar and refined sugar are basically different from each other, we cannot agree with the interpretation that raw cane sugar for VAT exemption purposes includes refined sugar. "Moreover, as regards the recommendation that Section 9(b) (2) of Revenue Regulations No. 5-87 be amended so as to include refined sugar within the term 'raw cane sugar', actually no regulation has as yet been promulgated to effect the amendment. Besides, the proposed amendatory regulations contravene the law (Section 103(b), Tax Code) which limits the exemption from VAT to raw cane sugar. Administrative regulations are valid only when they are not contrary to law. (Article 7, Civil Code) A rule or regulation to be valid, must be reasonable and consistent with law. (International R. Co. v. Davidson, 257 U.S. 506, 42 S. Ct. 179) Such being the case, this Office hereby withdraws said recommendation as it will result in tremendous loss of revenue to the Government. casia "In view of the foregoing considerations, it is respectfully recommended that VAT Ruling No. 08-88 exempting refined sugar from VAT be revoked. "Respectfully submitted: (SGD.) JOSE U. ONG Commissioner of Internal Revenue "APPROVED: (SGD.) VICENTE R. JAYME Secretary of Finance This Memorandum Circular is issued for the information and guidance of all concerned and shall take effect on September 1, 1989. (SGD.) JOSE U. ONG Commissioner of Internal Revenue