VAT Ruling No. 058-90

February 28, 1990 VAT RULING NO. 058-90 Confederation of Sugar Producers Assoc. Inc. Suite 8-S Legaspi Tower 300 Roxas Blvd. cor. Vito Cruz St. Manila 1000 Attention: Mr . Rodolfo A . Gamboa President Gentlemen : This refers to your letter dated September 11, 1989 requesting that "molasses" be considered a VAT-exempt product. llcd It is being contended that, agricultural food and non-food products, in their original state, are exempt from the 10% VAT; that, molasses being a by-product in the milling of sugar cane is an agricultural product in its original state and was allegedly exempted from tax before the enactment of the value added tax law. It is for this reason that your group finds no logic in imposing the VAT on the sale of molasses [Section 9(b)(2) Revenue Regulation 5-87] which is allegedly inconsistent with the law because of its questionable legal basis. In reply, please be informed that, the sale of non-food agricultural products is exempt from the 10% VAT, provided (1) that the sale is made by the primary producer or the owner of the land where the same are produced, [Sec. 103(a), NIRC, as amended] and (2) that the same are sold in their "original state". Moreover, the sale of agricultural food products is also exempt from VAT in all stages of production or distribution, provided that they are sold in their "original state" which under Section 103(b) of the same Code is defined as follows: "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, smoking or stripping. Polished and/or husked rice, corn grits and raw cane sugar shall be considered in their original state for purposes of this paragraph." Generally, milling which employs technology and machinery, is not considered as a simple process for purposes of qualifying agricultural products as remained in their original state. Thus, all milled products with the exception of rice, corn grits and raw sugar cane, are no longer in their original state; hence not exempt from VAT [Section 103(b) of the Tax Code as implemented by Section 9(b)(2) of Revenue Regulation 5-87]. Molasses, although a by-product of sugar milling is not however considered as raw cane sugar; hence its sale is subject to 10% VAT pursuant to Section 100 of the same Code. On your second contention, that molasses was exempted from tax before, please be informed that sugar milling was, before enactment of the VAT Law, subject to the millers tax [under Sec. 168, of the Tax Code of 1977, as amended.] which was imposed on the gross value of the milled sugar, including its by-products (e.g., molasses or bagasse). This contention therefore cannot be used as an argument for your request. On your third contention that the imposition of 10% VAT on molasses is inconsistent with law, please be informed that there is no such inconsistency. Section 100 of the same Code imposes a 10% VAT on the sale of goods except those specifically enumerated under Section 103 of the same Code. It is very clear under the law that molasses is not included among those qualified for exemption under subsection (b). In fact, Section 9(b)(2) of the revenue regulations implementing the VAT LAW (R.R. No. 5-87) expressly provides that "raw cane sugar" to which VAT exemption is limited does not include molasses among others. LexLib In view thereof, this Office regrets that your request that molasses be considered a VAT exempt product cannot be granted for lack of legal basis. Very truly yours, JOSE U. ONG Commissioner of Internal Revenue