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[ BIR REVENUE MEMORANDUM CIRCULAR NO. 7-94, February 18, 1994 ]


In BIR Ruling No. 017-88, dated February 1, 1988, it was held that sale of fresh water is exempted from the 10% VAT, pursuant to Section 103(b) of the National Internal Revenue Code, as amended by Executive Order No. 273, otherwise known as the VAT Law, the pertinent portion of which reads as follows:

"In reply, please be informed that fresh water comes within the purview of agricultural food products; hence, the sale thereof in all stages of distribution is exempt from the value-added tax pursuant to Section 103(b) of the Tax Code as amended by Executive Order No. 273."

In view of the criticisms against the validity of the aforementioned BIR Ruling 017-88 and in light of the policy to strengthen and to improve enforcement of the national internal revenue tax laws, a re-study thereof is imperative.

Section 103(d), NIRC, provides:

"Sale or importation in their original state of agricultural x  x  x  food products x  x  x  " shall be exempted from VAT.

Water is not agricultural product. Rather, it is a mineral. Thus -

Definition of minerals. - "The term 'minerals' shall mean all naturally occurring inorganic substances (found in nature) whether in solid, liquid, gaseous, or any intermediate state." (Sec. 257(b), NIRC, as amended by Batas Pambansa Blg. 84).

Definition of mineral products. - "The term mineral products' shall mean things produced and prepared in a marketable state by simple treatment such as washing or drying, but without undergoing any chemical change or process or manufacturing, by the lessee, concessionaire or owner of mineral lands." (ibid).

Definition of agriculture. - "The cultivation of soil for food products or any other useful or valuable growths of the field or garden x  x  x” (Bouvier's Law Dictionary, p. 167)

Definition of agricultural product. - "That which is the direct result of husbandry and the cultivation of the soil x  x  x  " (ibid)

It is clear from the foregoing that the term agricultural product pertains to organic products through cultivation of the soil, whereas the term mineral product pertains to inorganic substances naturally occurring in nature. It follows that water, being a substance naturally occurring in nature, is mineral rather than agricultural product. Accordingly, water, may not legally be classified as agricultural food product within the purview of Section 103(b), NIRC. Hence, sale of water, whether in the form of bottled mineral water or water delivered/supplied to inter-island and ocean-going vessels by persons engaged in the business of supplying water to the aforesaid inter-island and ocean-going vessels, shall be subject to 10% VAT, pursuant to Section 100(a), NIRC.

This Circular revokes VAT Ruling No. 017-88, dated February 1, 1988.

Adopted: 18 Feb. 1994

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