BIR clarifies VAT-exempt status of food ingredients

MANILA, Philippines - The Bureau of Internal Revenue said that only livestock and poultry feeds of ingredients used in the manufacture of finished feeds are exempted from the value added tax (VAT).

The BIR clarified that in order for the sale of livestock and poultry feeds to be exempt from VAT, there must be a showing that the same is unfit for human consumption or that the ingredient  can not be used for the production of food for human consumption as certified by the Food and Drug Administration.

The VAT, currently set at 12 percent,  is the  amount of tax that may be shifted or passed on to the buyer, transferee or lessee of the goods, properties or services.

The BIR issued the clarification after noting that some ingredients of finished feeds may also be used for the production of food for house consumption.

Specialty feeds refer to non-agricultural feeds or food for race horses, fighting cocks, aquarium fish, zoo animals and other animals considered as pets. 

Livestock and poultry products include fertilizers, seeds, seedlings, fingerlings, fish, prawn, livestock and poultry feeds.

 The Bureau of Internal Revenue is under pressure to raise its revenues from VAT which grew at a slow pace last year.

According to the  Department of Finance, VAT collections from large corporate taxpayers rose by only six percent compared with the 9.2-percent nominal growth rate of the economy in 2013.

To further shore up VAT collections, the DOF has directed the BIR to conduct an audit of large corporate taxpayers to check whether they are paying the correct VAT.  This includes third party verification.

Taxes imposed on large corporate entities are collected by the Large Taxpayers Service, a  special unit in the BIR,

There are currently around 2,000 corporations under the scope of the LTS.

Under the BIR’s rules and regulations, a corporate entity is considered a large taxpayer if it meets a combination of the following criteria: quarterly VAT payment of at least P200,000, quarterly percentage tax payment of at least P200,000, annual excise tax payment of at least P1 million, annual income tax payment of at least P1 million, annual withholding tax remittance of at least P1 million, and annual documentary stamp tax payment of at least P1 million.