VAT Ruling No. 009-03

January 10, 2003 VAT RULING NO. 009-03 Section 109 (c) BIR Ruling No. 083-95 Mabuhay Vinyl Corporation 3rd Floor, Philamlife Center 126 L.P. Leviste Street, Salcedo Village, Makati City Attention: Mr. Wilfredo D. Hamoy, Jr. AVP Finance Gentlemen : This refers to your letter dated April 29, 2002, requesting for an exemption from the Value Added Tax pursuant to the provisions of Section 109 (c) of the Tax Code of 1997. It is represented that your company is an importer of solar salt which is used as a basic raw material for the manufacture of caustic/chlorine chemicals; that your company also sells salt, in its original state, which is used by your clients to produce poultry feeds, fertilizers, table salt and various food products; that you source your salt from Dampier Salt Limited, Australia; that the production process states that the saturated brine is pumped into crystallizing ponds where further evaporation occurs and salt is deposited on top of a pre-formed floor of salt; that each crystallizer is harvested once a year, where salt is removed from the drained crystallizers by mechanical harvester and fed directly to road trains; that the road trains dump the freshly harvested salt into hoppers feeding the washplant which has a peak capacity in excess of 1,500 tonnes per hour; that the salt moves onto six stainless steel mesh washing belts where a series of sprays wash the salt with brine removing potassium and magnesium as well as gypsum and other solid impurities; and that after washing, the product is led to a stockpile for draining. HDAaIS In reply, please be advised that Section 109(c) of the 1997 Tax Code provides: "Sale or importation of agricultural and marine food products in their original state, livestock and poultry of a kind generally used as, or yielding or producing foods 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, broiling, roasting, smoking or stripping. Polished and/or husked rice, corn grits, raw cane sugar and molasses, and ordinary salt shall be considered in their original state;" Considering that the brochure you submitted coming from Dampier Salt Limited, Australia shows that the production of Solar Salt does not involve a simple treatment process but a complex method using modern technology, the same does not remain as food products in their original state which has undergone a simple process of preservation and preparation for the market. What would be outside of the scope of the term "simple process" is the kind of physical or chemical process which would alter the exterior texture or form, or inner substance of a product in such a manner as to prepare it for special use to which it could not have been put in its original form or condition. ( VAT Ruling No. 007-2001 dated February 16, 2001 ) Accordingly, your importation and subsequent sale of solar salt is not within the purview of the definition of a food product in its original state, hence, subject to the 10% value-added tax. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal and Inspection Group