VAT Ruling No. 023-91

April 3, 1991 VAT RULING NO. 023-91 Cassava Planters and Millers Association of the Philippines Suite 1201, Ermita Center Bldg. Roxas Boulevard, Manila Attention: Lininding Pangandaman President S i r s : This refers to your letter dated August 7, 1990 requesting a reconsideration of BIR Ruling No. 128-89 holding that cassava starch is subject to the value-added tax on the ground that the conversion of cassava tubers into cassava starch is a manufacturing process. In reply, please be informed that the phrase "whether in their original state or not" means "the transformation of said products by the application of simple processes to preserve or otherwise prepare said products for the market such as freezing, drying, salting, smoking or stripping" (Section 198, as amended by P.D. No. 1358). This provision was copied verbatim in Section 103 of the present Code so that this phrase must be given a meaning wherein the products embraced therein must be differentiated from the agricultural products covered by the "miller tax" provision of the 1977 Tax Code (Section 203). The differentiation is that the "original state" phrase covers agricultural products which are basically the same in physical appearance and composition, as when the same was harvested from the tree or soil. A milled product is one that has undergone a change thru different processes, not limited to freezing, drying, salting, smoking or stripping in order to come up with a finished product, already different in physical appearance from the original product, like the cassava starch as compared to the tuber, the rope from the abaca fiber, the edible oil from copra, the raw sugar from the sugar cane, etc. On the basis of the foregoing, cassava starch, which used to be subject to miller's tax is not the agricultural product "in its original state" under Section 103 of the present Tax Code and Section 198 of the 1977 Tax Code and, therefore, not exempt from VAT. In view thereof, your request of reconsideration is hereby denied. Very truly yours, JOSE U. ONG Commissioner of Internal Revenue