VAT Ruling No. 014-01

March 26, 2001 VAT RULING NO. 014-01 Department of Agriculture Elliptical Road, Diliman Quezon City Attention: Mr . Segfredo R . Serrano Asst. Secretary Policy and Planning Gentlemen : This refers to your letter dated September 10, 1999 endorsing a letter from the Alliance of Philippine Fishing Federation, Inc., requesting that the Tax Code of 1997 be amended, specifically to delete the word "importation" in the provision of paragraph (c) of Section 109 so as to remove from the VAT exemption the importation of frozen fish which importation the said organization deemed detrimental to the domestic fishing industry. As per representation of the Philippine Fishing Federation, Inc., the very low tariff plus the exemption from VAT of imported frozen fish and fishery products are causing the influx of these marine products in the wet markets; that as a result, the average landed cost of imported frozen fish amount to P17-P20 per kilo versus the average domestic production cost of P30 per kilo; that this privilege is granted by the government to canning factories supposedly for the purpose of importing fish and processing the same for export; that this privilege is being exploited by unscrupulous importers who classify their importation as "marine food products in their original state", in order to be exempt from the payment of the 10% VAT; thus the instant request. In reply, please be informed that the "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" is exempt from VAT. (Section 109(c) of the Tax Code of 1997). The term "original state" is amplified to mean as follows: "Meat, fruit, fish, vegetables and other agricultural and marine food products 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, including those using advanced technological means of packaging, such as shrink wrapping in plastics, vacuum packing, tetra-pak, and other similar packaging methods . " (Section 4.103-1(B), RR 7-95) The classification of the transaction to which the exemption relates is provided for by law and this is given indiscriminately, without distinction as to the class of taxpayers. Thus, in the instant case, the exemption applies whether the importation of frozen fish be made by canning factories or regular importers alike. This is not without any underlying reason. In order to make food products affordable to the consumers, Congress, in its wisdom, deems it fit not to subject to the tax burden products classified as agricultural and marine food products in its original state. As it is, this Office is without authority to cause the amendment of a valid and subsisting law on the matter which function is exclusively reserved to the law-making body of the land. It is therefore suggested that the petition of the Federation be directed to Congress. Very truly yours, (SGD.) LILIAN B. HEFTI Deputy Commissioner Legal and Inspection Group