EXERCISES 15-1.

DISCUSSION QUESTIONS

1. a. Yes, the sale of non-food agricultural products in their original state is subject to
VAT.

b. The sale is taxable because the object of sale is a non-food agricultural product.
It does not matter whether they are still in the original state or not.

c. The importation of lumbers from Indonesia is subject to VAT because the law does
not grant tax exemption on the importation of non-food agricultural, marine and
forest products.

d. The sale of the Pili nuts is exempt because the sale of agricultural food products
in their original state are exempt from VAT.

2. a. No. Importation of livestock and poultry products in their original state are
exempt from VAT. The livestock are still considered in their original state even if
they have undergone the simple process of dressing and/or stripping.

b. The sale of dressed chicken in the supermarkets is exempt also from VAT
because they are still in their original state.

c. The sale of the "litsong manok" to the public are exempt also from VAT because
the livestock and poultry products are still considered in their original state even
if they have undergone the simple process of roasting and/or stripping.

3. a. The law provides that the sale or importation of agricultural and marine food
products in their original state, livestock and poultry of a kind generally used as,
or yielding or producing foods for human consumption shall be exempt from VAT.
The process of making century eggs is embraced by this provision. The
exemption covers all sale in any stage of distribution in the domestic market.
Therefore, export sales are subject to 0% if he is VAT registered. If he is not VAT-
registered, the export sales are exempt.

b. The sale of century eggs in the local market is exempt. They are still considered
in their original state even if they have undergone the simple processes of
preparation or preservation such as freezing, drying, salting, boiling, roasting,
smoking or stripping. The process of making century eggs is a simple process to
prepare or preserve the same for the market.

4. a. The local sale by Mangingisda of the fish in their original state is exempt. The
fish shall be considered in their original state even if they have undergone the
simple processes of preparation or preservation for the general market such as
freezing, drying, salting, broiling, roasting, smoking or stripping, including those
using advanced technological means of packaging, such as shrink wrapping in
plastics, vacuum packing, tetrapak, and other similar packaging methods.

b. The export sales are exempt also from VAT if the exporter is not VAT registered. If
registered under the VAT system, it is taxable at 0%.

c. The exemption from VAT covers only the output VAT on the gross receipts from
the sale of fish in their original state. Hence, he cannot claim exemption from the
input VAT being passed on to him by the suppliers on the purchase of supplies,
parts, fuels, etc. as forming part of the invoice price (BIR Ruling 174-98).

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5. a. No, the importation and sale of fertilizers is exempt from VAT (BIR Ruling 217-88).

b. The sale of fertilizers is totally exempt from VAT even if they have been repacked
in the Philippines.

6. No, importation of personal and household effects belonging to residents of the

Philippines returning from abroad are exempt from tax. Likewise, importation of
wearing apparel and personal and household effects for their own use and not for
sale, barter, or exchange are also exempt from VAT.

7. If Dalmacio is a VAT-registered taxpayer, the exportation of goods is subject to VAT

but the tax rate is 0%. If he is not VAT-registered, the exportation is exempt from the
coverage of VAT.

8. The importation of the agricultural equipment is exempt. The law exempts

importation of direct farm inputs, machineries and equipment, including spare parts
thereof, to be used directly and exclusively in the production and/or processing of
their produce. The digging and preparing drainage for irrigation of farms and
plantation are considered as “in the production of their produce ”(BIR Ruling 122-98).

9. a. Not taxable – the condominium unit is not held primarily for sale to customers.
b. Taxable – the house and lot is primarily for sale.
c. Not taxable – the real property is not held for sale in the ordinary course of
business.
d. Not taxable- even if the seller is a real estate dealer because the real property is
utilized for socialized housing.

10. No, sale of magazine, review or bulletin which appears at regular intervals with fixed
prices for subscription and sale which is not devoted principally to the publication of
paid advertisements are exempt from VAT.
11. The sale of the sea snakes and of the snake skin leather are subject to VAT. The
taxability applies whether the products are sold in their original state or not, and
whether they are sold by the primary producer or by a subsequent seller.

12. The sale of cotton by Delilah to the “compradores” and the latter’s sale to cotton
bud manufacturer is subject to VAT because sale of cotton and cotton seeds are
taxable whether sold in their original state or not.

13. A sale by the artist of his works of art, literary works, musical compositions and
similar creations, or its services performed for the production of such works is subject
to VAT.
Therefore, the sale by Cayaya to the recording company as well as the sale by the
latter to the public are subject to VAT.

14. The sale of electricity, the importation of machineries and equipments as well as the
local purchases of machineries, spare parts and equipments are subject to value-
added tax even if the same are to be used directly in the generation of electricity.

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