VAT Ruling No. 010-93

April 21, 1993 VAT RULING NO. 010-93 Section 2-88-000-00-010-93 Philippine Exporters Confederation, Inc. National Trade Center Roxas Blvd. Cor. Sen. Gil Puyat Ave. Pasay City Attention: Mr . Sergio R . Ortiz-Luis, Jr . President Gentlemen : This refers to your letter dated November 27, 1992 in relation to the position paper submitted by Atty. Florecita P. Flores, Chairperson of the Committee on Taxation of the Philippine Chamber of Commerce & Industry (PCCI) requesting reconsideration of VAT Ruling No. 101-92 to the effect that since packaging materials are not raw materials that are converted to, or forming part of the manufactured product, when sold by the indirect exporter to the manufacturer-exporter, they are not zero-rated. cdta It appears that your present request for reconsideration of VAT Ruling No. 101-92 is based on your representation that although packaging materials do not undergo conversion, they form part of the finished export products, that no garments, semi-conductors, appliances toys, etc. reach foreign destination without their packaging; revenues derived from these exported goods always include the value of any packaging material, thus it is only fair to credit the packaging materials sector for its contribution to the foreign exchange earnings of our country; that packaging materials form an integral part of a product and consist of two types the first type, or the direct packaging materials, are used to contain products particularly liquid or better preparations such as tetra brik type packs or PET bottles for juices and other beverages, and vacuum sealed containers for fresh foods; that the major users of direct packaging materials among the exporters are the companies engaged in food and beverage manufacturing and processing where packaging consists of approximately forty (40%) to sixty (60%) percent of the cost of a finished product; that the other major users of direct packaging materials are those engaged in the manufacture of cosmetics; and that the second type of packaging materials is the indirect packaging materials which is used to contain finished products (which are often also already packaged) for proper handling during shipment such as carton boxes and crates. In reply, please be informed that based on the foregoing facts, since both direct and indirect packaging materials are indispensable in the marketing and exportation of finished products; the same shall be considered raw materials for purposes of applying the provision of Revenue Regulations No. 2-88. Accordingly, the sale thereof by a supplier to an export-oriented BOI-registered enterprises whose export sales, under rules and regulations of the Board of Investments, exceed seventy percent (70%) of the total production shall qualify for zero-rating upon compliance with the following conditions: 1. The seller shall file an application with the BIR, Attn.: VAT Division, applying for zero-rating for each and every separate buyer, in accordance with Section 8(d) of Revenue Regulations No. 5-87.The application should be accompanied with a favorable recommendation from the Board of Investments. 2. The raw materials sold are to be used exclusively by the buyer in the manufacture processing or repacking of his own registered export product; 3. The words "Zero-Rated Sales" shall be prominently indicated in the sales invoice. The exporter (buyer) can no longer claim from the Bureau of Internal Revenue or any other government office tax credits on their zero-rated purchases. It is understood however that the transaction that qualifies for zero-rating under this ruling refers only to the sale by a supplier to a BOI-registered manufacturer-exporter of packaging materials that either form an integral part of, or are indispensable in the marketing and handling of finished products exported. It does not apply to transactions involving sale of containers returnable to and reusable by the seller. cdti This modifies VAT Ruling No. 101-92 dated August 20, 1992. Very truly yours, VICTOR A. DEOFERIO, JR. Deputy Commissioner Officer-in-Charge