VAT Ruling No. 038-98

November 20, 1998 VAT RULING NO. 038-98 109-027-98-038-98 Tropical Synergy Industries 78 Villamor Street Bo. Obrero, Davao City Attention: Mr . Robert Go Gentlemen : This refers to your letter dated September 11, 1998 requesting for a ruling on whether or not your firm is exempt from value-added tax. It is represented that your firm is engaged in the preparation of Dried Mangoes/Fruits and Mango Puree/Concentrate; that your business operation involves the sourcing or purchase of fresh raw mangoes from backyard mango farmers in the provinces; that you dehydrate the mangoes (draw out up to 80 to 85% of the moisture content of the mangoes which is the main principal activity in making dried mangoes/fruits) or mash the fruit to arrive at the finished product status of dried mangoes/fruits or fruit puree/concentrate which you then market; that it is a very simple type of an operation using local methods and techniques since the product was borne out by your very own nationally creative minds which has become a winner in the local and foreign markets; that all were done without foreign inputs or suggestions. In reply, please be informed that the transactions exempt from VAT are provided for under Section 109 of the Tax Code of 1997, to wit: "SEC. 109. Exempt Transaction . The following shall be exempt from the value-added tax: xxx xxx xxx "(c) 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." (Emphasis supplied) Accordingly, agricultural food products which undergo the simple process of preparation or preservation shall still be considered in its primary state for purposes of exempting the same from the coverage of VAT. However, as presented, the processes involved in turning such products into purees or concentrate are by no means simple acts of preparation or preservation as the same already partake the nature of a full manufacturing process which transforms fruits, etc. into an entirely different form. Such being the case, your request for exemption from VAT is hereby denied. (BIR VAT Ruling No. 000-027-98, dated September 11, 1998). dctai Very truly yours, (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner Legal & Enforcement Group