Question & AnswerQ&A (BIR REVENUE MEMORANDUM CIRCULAR NO. 97-2010)
The subject is the VAT exemption of services by agricultural contract growers under Section 109(F) of the Tax Code of 1997, as amended.
Agricultural contract growers are persons producing poultry, livestock, or other agricultural and marine food products in their original state for others, involving the growing of these products into marketable form.
Both the contract growing services and toll processing/toll dressing/toll manufacturing services that are part of the contract growing are exempt from VAT.
These activities include weighing, killing, dressing, scalding, cut-ups, and packaging.
Toll processing is VAT exempt only if it is performed as part of the contract growing service or for clients whose animals are grown under contract.
When these services are performed independently of growing poultry, livestock, or other agricultural and marine food products, they are subject to VAT under Section 108.
Section 108 provides that there is a VAT of 12% on gross receipts from the sale or exchange of services, including those in milling, processing, manufacturing, or repacking goods for others.
It refers to performing all kinds of services in the Philippines for others for a fee, remuneration, or consideration, regardless of whether it involves physical or mental faculties.
The circular clarifies that VAT exemption applies only when toll processing services are rendered to clients whose animals are contracted for growing; independent toll processing not related to contract growing is VATable.