Legal basis and related issuances
- The exemption framework for agricultural cooperatives arises from Section 109(1)(L) of the National Internal Revenue Code (NIRC), as amended, which exempts VAT sale by agricultural cooperatives duly registered with the Cooperative Development Authority (CDA) of their produce (whether in original state or processed form) to non-members.
- Revenue Regulations (RR) No. 8-2015 (dated 22 May 2015) provides that sugar withdrawals for sale to non-members are subject to advance VAT or percentage tax if the agricultural cooperative is not the producer of sugar (Section 5(b)).
- RR No. 8-2015 further provides that if the seller-cooperative is not an agricultural producer but purchases sugar (whether from members or non-members) or transfers sugar to a cooperative through assignment, its sale to another agricultural cooperative is subject to VAT, and withdrawals from the sugar refinery/mill are allowed only upon payment of advance VAT or percentage tax (Section 5(c)).
- Joint Rules and Regulations Implementing Articles 60, 61 and 144 of RA No. 9520 provide that sales by agricultural cooperatives to non-members are exempt from VAT only if the producer is the cooperative itself (Section 8(b.2.1.2)).
- RR No. 13-2008 (dated 19 September 2008) supplies the producer concept for sugar: a cooperative is the producer of sugar if it tills owned or leased land, incurs cost of agricultural production, and produces sugar cane to be refined (Section 4(a)).
- The Circular aligns the sugar producer concept with the cooperative “producer” concept under Article 23(c) of RA No. 9520 (Cooperative Code of 2008).
Policy and objective
- The Circular is issued to avoid confusion and to give full effect to Section 5(b) and Section 5(c) of RR No. 8-2015 in relation to Section 4(a) of RR No. 13-2008.
- The clarification also applies in line with Section 8(b.2.1.2) of the Joint Rules implementing Articles 60, 61 and 144 of RA No. 9520.
- The specific objective is to clarify the nature and extent of the agricultural cooperative that is the producer of sugar for purposes of exemption from advance VAT or percentage tax.
Core clarification: “producer of sugar” test
- A duly registered agricultural cooperative is the producer of sugar when it matches the concept of a producer-as-cooperative, i.e., members produce raw materials or goods for processing into finished or processed products for sale by the cooperative to members and non-members.
- The producer determination requires that the cooperative is the tiller, through its members, of the land it owns or leases (Section 3(a)).
- The producer determination also requires that the cooperative incurs cost of agricultural production of the sugar and produces the sugar cane to be refined (Section 3(b)).
- The two requisites under Section 3(a) and Section 3(b) must concur; the producer status fails if either requisite is missing.
Effect on VAT/advance VAT/percentage tax on withdrawals and sales
- To qualify for exemption from advance VAT or percentage tax for withdrawals of sugar for sale to non-members or to another agricultural cooperative, the cooperative must be the producer of sugar.
- If the cooperative is not the producer of sugar, its withdrawals of sugar for sale to non-members or to another agricultural cooperative are subject to advance VAT or percentage tax.
- If a cooperative is not an agricultural producer and merely purchases sugar (from planters whether members or non-members) or transfers sugar through assignment, its sale to another agricultural cooperative is subject to VAT, and withdrawals from the sugar refinery/mill are allowed only upon payment of advance VAT or percentage tax.
- Exemption for sales to non-members under Section 8(b.2.1.2) is limited to sales where the producer is the cooperative itself; where the cooperative is not the producer (e.g., a trader), only sales to members are exempt.
Concept of producer-as-cooperative and deemed product rule
- The Circular treats a cooperative as a “producer-as-cooperative” when it undertakes joint production (agricultural or industrial) by members, forming and operating to produce and process members’ raw materials or goods into finished or processed products for sale by the cooperative to members and non-members.
- Any end product or its derivative arising from the raw materials produced by its members and sold in the name and for the account of the cooperative is deemed the product of the cooperative and its members.
- The deemed product rule supports that exempt transactions under Section 109(1)(L) of the NIRC encompass sales by a duly registered agricultural cooperative organized and operated by its members to produce and process members’ raw materials or goods into finished or processed products for sale to both members and non-members.
- The exempt transactions for processed products apply when the processed product or derivative arising from members’ raw materials is sold in the cooperative’s name and for its account.
Definitions and terms used in the framework
- For sugar classification purposes referenced in the related regulatory context, sugar refers to sugar other than Raw Cane Sugar, including sugar with content of sucrose by weight (in the dry state) corresponding to a polarimeter reading of 99.5 and above and/or whose color is 800 ICU or less.
- The exemption and advance tax/withdrawal rules operate with the distinction between Raw Cane Sugar and other sugar classifications as defined in related regulations.
Implementation and effectivity
- Revenue officers and employees must give the Circular as wide a publicity as possible.
- The Circular takes effect immediately.