VAT Ruling No. 087-91

September 4, 1991 VAT RULING NO. 087-91 100-101 (a)-000-00-087-91 1st Indorsement Respectfully returned to the Director, Presidential Management Staff, PMS Bldg., Malacaang Annex, Arlegui St., Metro Manila, the within letter of Mr. Benito S. Chua, Vice-President Mindanao Cotton Development Corporation, 2nd Barrio Lagao, General Santos City, dated May 13, 1991, requesting for: (1) complete lifting of the value-added tax (VAT) on cotton from all cotton channels up to textile mills; and (2) granting of tax credit to textile mills and garment manufacturers that use local cotton for export, with the following comments. 1. Cotton is an agricultural non-food product. The sale of said cotton in its original state by the producer, whether cooperative or not, or by the owner of the land where the same are produced, is exempt from value-added tax pursuant to Sec. 103(a) of the Tax Code. It may also be stated, that as correctly observed in the aforesaid letter, Sec. 62(3) of RA 6938 exempts from sales tax (now equated with the value-added tax) sales by producer cooperative, like sales of cotton by cotton producers cooperatives. 2. If the cotton is sold by the producers to ginnery company and the latter after removing the seeds from the cotton, sells the same cotton to textile mills, the sale is subject to the 10% value-added tax. The textile mills, manufacture the cotton to thread/strands and subsequently to textile. The sale of the textile mill of textile to the garment manufacturer is also subject to the 10% value-added tax pursuant to Sec. 100(a) by the Tax Code. However, if the garment manufacturer exports the finish products, its export sales shall be subject to zero rate value-added tax. Moreover, the 10% VAT that has been passed on by the textile mill to the garment manufacturer may be credited against the VAT liability of the garment manufacturer, tax credited or refunded. Imported cotton is subject to 10% value-added tax pursuant to Sec. 101 of the Tax Code. If the imported cotton is processed into textile by textile mills and subsequently sold to garment manufacturers, the sale is also subject to the 10% value-added tax in the same manner that the sale of textile manufactured out of locally-produced cottons. aisadc JOSE U. ONG Commissioner of Internal Revenue cc: Mr. Benito B. Chua Vice-President Mindanao Cotton Dev. Corp. 2nd Barrio Lagao General Santos City