VAT exemption on agricultural contract growing services

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BIR REVENUE MEMORANDUM CIRCULAR NO. 97-2010: VAT exemption on agricultural contract growing services

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Title Source: Supreme Court: VAT exemption on agricultural contract growing services

Law: Bir Revenue Memorandum Circular No. 97-2010

Decision Date: Dec 21, 2010

The Bureau of Internal Revenue clarifies that agricultural contract growers are exempt from VAT for services related to growing poultry, livestock, and marine products, while toll processing services performed independently are subject to VAT.

Law Summary

Definition and Role of Agricultural Contract Growers

Agricultural contract growers are persons producing poultry, livestock, or other agricultural and marine food products in their original state for others.
Their primary service is the growing of these products into marketable forms.

VAT Exemption on Services by Agricultural Contract Growers

Services by agricultural contract growers in growing poultry, livestock, or other food products are exempt from VAT under Section 109(F) of the Tax Code of 1997, as amended.
This exemption extends to toll processing, toll dressing, or toll manufacturing when offered as a packaged service along with contract growing.
Toll processing activities include weighing, killing, dressing, scalding, cut-ups, and packaging.

Clarification on Independent Toll Processing Services

Toll processing or dressing done independently from agricultural contract growing is subject to VAT.
Prior BIR rulings that considered independent toll processing services as VAT exempt were reconsidered.
Only toll processing services related to the contract growing of animals are VAT exempt.

Legal Basis and Relevant Provisions

Section 108 of the Tax Code establishes VAT on the sale of services, including processing services for others.
Section 109(F) provides exemption for services by agricultural contract growers.

Practical Implications for Taxpayers

Agricultural contract growers must ensure that toll processing services are part of their contract growing activities to qualify for VAT exemption.
Independent providers of toll processing, dressing, or manufacturing are liable for VAT.

Regulatory Guidance

The BIR issues clear guidance through memoranda and rulings to align practices with tax laws.
Current interpretation supersedes prior rulings that broadly exempted independent toll processing services from VAT.

Effective Date and Authority

The clarification is issued by the Commissioner of Internal Revenue on December 21, 2010.
It serves as an official directive for consistent application and tax compliance.

END