VAT Ruling No. 088-99

August 16, 1999 VAT RULING NO. 088-99 R.R. 7-89-000-088-99 Philfoodex Room 304 J.S. Contractor Bldg. 423 Magallanes St., Intramuros Manila Attention: Jesus T . Tanchanco Sr . President Gentlemen : This refers to your letter dated March 8, 1999 requesting for exemption from the payment of advance VAT on the sale of refined sugar which tax is presently collected by the sugar mills. It is represented that Philfoodex is the largest organization of food processors and exporters in the Philippines; that for the past several years, PHILFOODEX has been actively promoting exports of processed food; that the government, through the Sugar Regulatory Administration (SRA) allocated one percent (1%) of sugar production for Crop Year 1998-99 as "B-1" or processors'/exporters sugar (raw sugar) to be sold exclusively to PHILFOODEX to provide it cheaper sugar and enable the members thereof to remain competitive in the world market; that, however, majority of food manufacturers who bought the raw sugar require that the same be turned into refined sugar to make it suitable to their products, hence it is necessary to have such "B-l" sugar refined by the different sugar mills; that you have approached the different sugar mills to avail of their tolling and other services for the purpose of processing the raw sugar allocation into refined sugar. In this regard, you now request that PHILFOODEX be exempted from the payment of the advance VAT on the sale of refined sugar which is presently being collected by the mills, on account of the fact that the "B-l" sugar allocated to food processors will not be resold but will be directly used for food manufacturing purposes. In reply, please be advised that the advance payment of value added tax on the sale of refined sugar is prescribed under Revenue Regulations No. 7-89. Section 3 thereof provides that "Section 3. Requirement to pay in advance VAT on sale of refined sugar. The value-added tax on the sale of refined sugar shall be paid in advance by- the owner/seller to the Bureau of Internal Revenue (BIR), thru the sugar refinery. The advance payment shall be made prior to or upon issuance of the refined sugar release order (RSRO) or similar instruments." Clearly, the sugar refinery is constituted as a withholding agent and collects the VAT in advance from the intended recipient/owner in connection with sale of the refined sugar, that is, prior to its withdrawal from the refinery. Inasmuch as PHILFOODEX, under a toll milling arrangement, will have their allocated B-1 sugar milled not for the purpose of reselling the refined product but for direct consumption in food manufacturing process as ingredient in Philippine food products for export, then this Office may recognize the non-application of the advance VAT payment for the withdrawal of refined sugar. Likewise, since as represented, members of PHILFOODEX are engaged in the export of food products, then said activity may be either exempt or subject to zero percent VAT, thus not resulting in any output tax against which any advance payment of VAT can be credited against. Accordingly, your request for the exemption therefrom is hereby confirmed and this ruling shall serve as the authority for the concerned sugar mill not to collect advance VAT from PHILFOODEX. It must be understood, however, that the toll milling arrangement is subject to VAT. cdll The actual withdrawal of refined sugar without pre-payment of VAT shall be undertaken through PHILFOODEX and evidenced by the corresponding "B-1" quedan-permits issued/allocated to members thereof who are principally engaged in the business of processing sugar-based food products for export. This ruling supersedes and/or otherwise revokes any previous rulings inconsistent herewith and is issued on the basis of the foregoing facts as represented. If it is subsequently found that the facts are different, then this ruling shall be considered null and void. Very truly yours, (SGD.) BEETHOVEN L. RUALO Commissioner of Internal Revenue