VAT Ruling No. 005-91

January 9, 1991 VAT RULING NO. 005-91 Attention : Mr . Manuel Luis L . Zialcita VP-Controller Gentlemen : This refers to your letter dated September 11, 1990 requesting information whether your sales of processed meat products, viz., "hamburger mix, hamburger patties, smokey's burger and smokey's torpedo, and chicken timplado" can be legally classified as agricultural food product in their original state, hence, VAT-exempt under Section 103(b), NIRC, pertinent portion of which reads: prll "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." In reply, please be informed that the above are "processed meat products" the same are not embraced by the term, agricultural food products in their original state under Section 103(b), NIRC. Accordingly, your sales thereof are subject to the 10% Value-Added Tax, pursuant to Sections 99 and 100, ibid. Please be informed that the VAT law is a carry-over and has it roots from the old law on sales and other business taxes availing under the NIRC immediately prior to promulgation of Executive Order No. 273, otherwise known as the VAT law. In general, sale transactions therefore embraced by sales/business taxes immediately thereafter became embraced by the VAT law. The term, agricultural food and non-food products in their original state, which is presently found under Sec. 103(b), NIRC, is a literal carry-over from the old sales tax law except only with respect to certain milled products, viz., "Polished and/or husked rice, corn grits and raw cane sugar", i.e., E.O. 273 expanded the coverage of the term, agricultural products in their original state, to include the said milled products for purposes of VAT exemption. The term, agricultural food and non-food products in their original state, under the old sales tax, did not embrace processed food products (e.g., processed meat products) and milled agricultural products. Rather processed food products were levied with sales taxes while milled agricultural products were levied with millers taxes. (See Sections 201 and 203, respectively, NIRC, as amended by P.D. 1358, prom. April 21, 1978) The term, agricultural food and non-food products in their original state, was limited in meaning it only referred to such agricultural products which, under the sales tax law, were first exempted from sales tax under Sec. 188(b), old NIRC (see 1964 edition of NIRC) and which, beginning April 21, 1978, was levied with 1% sales tax pursuant to P.D. 1358. (See Sec. 198, NIRC of 1977, as amended by P.D. 1358 re 1% sales tax on sales of agricultural products in their original state) The only statutory amendments made by the VAT law about this class of agricultural products was (a) agricultural food and non-food products in their original state was made exempted from VAT; and (b) it also expanded the coverage of this term, i.e., it included certain milled products, viz., polished and/or husked rice, corn grits, and raw cane sugar under the term, agricultural products in their original state even if the same have already undergone milling processes. In short, where before amendment all milled products were not embraced by the said term the VAT law, however, placed the said milled products within the statutory meaning of the term, agricultural products in their original state, for purposes of VAT exemption. In view thereof, the aforementioned "processed meat products" cannot be legally considered embraced by the term, agricultural food products in their original state for purposes of Section 103(b), NIRC, as amended by E.O. 273. Hence, your sales thereof are subject to 10% VAT pursuant to Sections 99 and 100 of the said Code. Very truly yours, JOSE U. ONG Commissioner of Internal Revenue