VAT on Sale of Water as Mineral Product

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BIR REVENUE MEMORANDUM CIRCULAR NO. 7-94: VAT on Sale of Water as Mineral Product

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Title Supreme Court: VAT on Sale of Water as Mineral Product

Law: Bir Revenue Memorandum Circular No. 7-94

Decision Date: Feb 18, 1994

The BIR Revenue Memorandum Circular No. 7-94 clarifies that the sale of water, classified as a mineral rather than an agricultural product, is subject to a 10% value-added tax, revoking the previous exemption established in BIR Ruling No. 017-88.

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Reconsideration and Policy for Enforcement

Criticisms surfaced challenging the validity of BIR Ruling No.17-88.
Policy shift towards stronger enforcement of national internal revenue laws necessitated a re-evaluation.

Statutory Provision on VAT Exemption for Agricultural Food Products

Section 103(d), NIRC, exempts sale or importation of agricultural food products in their original state from VAT.

Definitions Relevant to Classification of Water

Minerals: Naturally occurring inorganic substances regardless of state (solid, liquid, gaseous). (Sec. 257(b), NIRC)
Mineral Products: Marketable substances prepared by simple non-chemical treatment from mineral lands.
Agriculture: Cultivation of soil for food or other valuable growths (Bouvier's Law Dictionary).
Agricultural Products: Direct results of cultivation and husbandry.

Legal Distinction Between Agricultural and Mineral Products

Agricultural products are organic and derived from soil cultivation.
Mineral products are inorganic and occur naturally without cultivation.
Water, being naturally occurring and inorganic, is classified as a mineral rather than an agricultural product.

Legal Implications for VAT on Sale of Water

Water does not fall under the VAT exemption for agricultural food products under Section 103(b), NIRC.
Sale of water, whether bottled mineral water or supplied to inter-island/ocean-going vessels, is subject to 10% VAT under Section 100(a), NIRC.

Revocation of Previous Ruling

This circular formally revokes VAT Ruling No. 017-88 (Feb 1, 1988).

Issuance

Issued and adopted on February 18, 1994, by Commissioner Liwayway Vinzons-Chato.

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