VAT Ruling No. 051-92

April 13, 1992 VAT RULING NO. 051-92 NIRC Sec. 103 K Precedent Ruling 000-00 The Honorable Secretary Fulgencio S. Factoran, Jr. Department of Environment and Natural Resources (DENR) Visayas Avenue, Diliman, Quezon City Dear Secretary Factoran : This refers to your letters of October 31 and December 27, 1989 requesting that the DENR's reforestation contract growers/contractors be considered exempted from the 10% value added tax (VAT), pursuant to Section 103(k), NIRC, as amended by E.O. No. 273, and for a reconsideration of the interpretation that the said law is only limited to piggery and poultry contract growers. It is represented that this Reforestation Program is funded from foreign loans extended by the Asian Development Bank (ADB) and the Overseas Economic Cooperation Fund; that, of the $240 million foreign loan, 75% or $180 million thereof is available for reforestation contracts; that, it is your intention to fully utilize there funds for reforestation; that, however, if 10% VAT is levied on these contracts, the funds for reforestation will be considerably reduced which, in terms of hectarage, will mean 13,860 hectares of land may not be reforested. In this connection, please be informed that Section 103, NIRC, provides, thus: Sec. 103. Exempt Transactions . The following shall be exempt from the value-added tax: "(k) Services by agricultural contract growers and milling for others of palay into rice, corn into grits and sugar cane into raw sugar." xxx xxx xxx Section 9(b)(11) of Revenue Regulations No. 5-87 also provides: "Agricultural contract growers refer to those producing for others poultry, livestock or other agricultural and marine food products in their original state." The said provision in the VAT Regulations notwithstanding, it was held in VAT Ruling No. 473-88, dated October 10, 1983, that Section 103(k), NIRC, is not limited but rather includes non-food agricultural contract growers, viz .: "In case the contractor is simply paid for services rendered in planting and growing of falcatta and bagras trees for someone else, such services may qualify as agricultural contract grower, exempt under Sec. 103(k) of the Tax Code." However, the said ruling was revoked by VAT Ruling No. 199-89, dated August 10, 1989, viz .: ". . . Since Falcatta and bagras products are classified as agricultural non-food products, contract growing thereof is subject to VAT effective January 1, 1988. This modifies . . . VAT Ruling 473-88 (dated October 7, 1988.)" Notably, the above-quoted Regulations wrote into the exemption provision of Section 103(k) of the Tax Code, as amended, as unwarranted interpretation of the law. In providing that agricultural contract growers refer to those producing for others food products in their original state, the Regulations made a distinction where the law obviously did not make one. Ube lex non distinouit, nec nos distinouere debemos . Where the law does not distinguish, we should not distinguish . ( Dominador vs. Darayunan, 49 Phil. 457 ). Section 103(k) of the Tax Code, as amended, grants VAT exemption to two kinds of persons: (1) agricultural contract growers on their services as such; and (2) millers for others of palay into rice, corn into grits and sugar cane into raw sugar. DSIaAE "Agriculture", as defined in Article 97(d) of the Labor Code of the Philippines, includes farming in all its branches and, among others , includes the cultivation and tillage of soil, dairying, the production, cultivation, growing and harvesting of any agricultural and horticultural commodities, the raising of livestock or poultry, and any practice performed by a farmer on a farm as an incident to or in conjunction with such farming operations, but does not include the manufacturing or processing of sugar, coconuts, abaca, tobacco, pineapples or other farm products. "Agriculture" is an indefinite word, and it includes farming, horticulture, forestry , and the use of land for any purpose of husbandry, inclusive of the keeping or breeding of livestock, poultry, or bees, and the growth of fruit and vegetables; the numerous tasks incidental to such activities all are within the scope of the employment of an "agricultural worker". ( Melendez vs. Johns, 76 P. 2d 1163, 1167 ). On the basis of the foregoing, it is the opinion of this Office as it hereby holds that the DENR's reforestation contract growers/contractors are exempt from the 10% value-added tax on the basis of Section 103(k) of the Tax Code, as amended. Very truly yours, (SGD.) JOSE U. ONG Commissioner of Internal Revenue