VAT Ruling No. 022-02

April 3, 2002 VAT RULING NO. 022-02 Section 109 (c) VAT Ruling No. 094-97 Syntengco Enterprises Corporation No. 10 Resthaven Street, SFDM Quezon City Attention: Mr. Renan M. Del Rosario Senior Vice President Gentlemen : This refers to your letter dated January 21, 2001 requesting for a certification to the effect that Chili Powder, Garlic Powder and Onion Powder used as spices is exempt from the Value Added Tax (VAT) under Section 109 (c) of the 1997 Tax Code. It is represented that all three products involved are processed through harvesting, dehydrating through sun drying or low temperature oven drying or freezing, then grounding and pulverizing, followed by the addition of 0.00005% of antioxidant (in the case of Garlic and Onion powders) and vacuum-packing, both of which serve to preserve the freshness of the spices; and that Chili powder has a natural component that protects it from degradation, hence, no preservatives are added. In reply, please be advised that Section 109 (c) of the 1997 Tax 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 subject Chili Powder, Garlic Powder and Onion Powder had only been dehydrated and grounded without further processing nor any preservatives added, the same remains food products in its original state since it has merely undergone a simple process of preservation and preparation for the market. What would be outside 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 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 of Chili Powder, Garlic Powder and Onion Powder is within the purview of the definition of a food product in its original state, hence, exempt from the 10% value-added tax. Very truly yours, Commissioner of Internal Revenue By: (SGD.) EDMUNDO P. GUEVARA Deputy Commissioner Legal & Inspection Group