Internal Revenue Commissioner Kim Jacinto-Henares has clarified that an agricultural cooperative should be the producer of the sugar for the commodity to be exempt from the advance payment of value-added tax (VAT).
Henares issued Revenue Memorandum Circular 40-2015 that defined the agricultural cooperatives considered as producers of the sugar they sell.
Under the new circular, for an agricultural cooperative to be considered as the producer of the sugar that it sells, it should be the tiller of the land that it owns or leases, and it should incur the cost of the agricultural production of the sugar and produces the sugarcane to be refined.
“The aforesaid requisites must concur. In the absence of any one of these requisites, an agricultural cooperative cannot be considered a producer of sugar and, thus, its withdrawals of sugar for sale to nonmembers or another agricultural cooperative are subject to advance VAT or percentage tax,” the circular said.
The new circular also clarified the tax treatment of agricultural cooperatives, which produce the
sugar themselves from a “seller-cooperative,” which merely purchases the sugar then sells it to others.
Under the National Internal Revenue Code, the sale by agricultural cooperatives of their produce is exempt from VAT, whether such produce is in its original state or in processed form, and whether the sale is to members or nonmembers.
But if the agricultural cooperative is not the producer of the sugar, withdrawals for sale of the sugar to nonmembers are subject to the advance payment of VAT.
And if the seller-cooperative is not an agricultural producer, but merely purchases sugar from planters, whether they be members or nonmembers, the sale by such seller-cooperative of the sugar to another agricultural cooperative shall be subject to VAT, and its withdrawals from the sugar refinery or mill will only be allowed upon payment of the advance VAT or percentage tax.