VAT-Exempt Products in the Philippines: Meat, Fish, Fruits, Vegetables and Grocery Store Rules
Complete guide to which agricultural products are VAT-exempt and how the exemption works for market vendors, grocery stores, and supermarkets
What you'll learn in this VAT-exempt products guide
This VAT-exempt products guide for Philippine businesses explains which fresh meat, fish, fruits, and vegetables are non-taxable under Section 109 of the NIRC, how the CREATE Act affects exemptions, and what compliance steps grocery stores and supermarkets must follow.
For related tax compliance topics, also see our Withholding Tax Guide , BIR Form 2550 DS Guide , 8% Income Tax Rate Guide , and Philippines Tax Compliance Guide 2026 .
Introduction — What Are VAT-Exempt Products?
VAT-exempt products are goods that the Philippine government has decided should not carry the 12% Value-Added Tax. Under Section 109 of the National Internal Revenue Code (NIRC), as amended by the CREATE Act (Republic Act No. 11534) and further refined by the CREATE MORE Act, certain agricultural and food products are exempt from VAT to keep food affordable for ordinary Filipinos.
The list of VAT-exempt products includes fresh meat, fresh fish and other marine products, fresh fruits, fresh vegetables, rice, corn grits, cassava, sweet potato (kamote), eggs, poultry, salt, and other agricultural food products in their original state. These are the products you see every day in the palengke (public market), sold by market vendors who do not add VAT to the price.
But here is where it gets confusing for many business owners: what happens when these same products are sold in groceries, supermarkets, or other large retail stores? Does the VAT exemption still apply? The short answer is yes — the VAT exemption applies to the product itself, not to the seller. However, large stores that sell both exempt and non-exempt products face additional compliance requirements.
Key Takeaway
VAT exemption is based on the product and its condition (fresh vs. processed), not on the size or type of the seller. A kilo of fresh fish is VAT-exempt whether sold by a palengke vendor or by a supermarket chain.
Why Certain Products Are VAT-Exempt in the Philippines
The Philippine government exempts basic agricultural and food products from VAT for several important reasons:
Food Security and Affordability
Fresh meat, fish, rice, and vegetables are daily necessities. Adding 12% VAT would make these essential goods more expensive, hitting low-income families the hardest.
Social Policy
The government uses VAT exemptions to protect the poorest Filipinos from the regressive nature of VAT. Unlike income tax, VAT affects everyone equally regardless of income level — so exempting basic food items provides relief to those who need it most.
Supporting Local Agriculture
By keeping VAT off fresh agricultural products, the government encourages consumption of locally produced food and supports Filipino farmers and fisherfolk.
Preventing Price Cascading
Agricultural products pass through multiple stages — from farmer to trader to retailer. If VAT were applied at each stage, prices would compound significantly by the time products reach consumers.
CREATE Act Amendments
The CREATE Act, signed into law in 2021, expanded and clarified the list of VAT-exempt products to include additional agricultural goods. The CREATE MORE Act further refined these provisions to reduce ambiguity and improve compliance.
The result is that when you buy fresh meat, fish, fruits, or vegetables — whether from a palengke vendor or from the fresh produce section of a grocery store — no VAT should be charged on those items.
How VAT Exemption Works for Different Sellers
One of the most common questions from business owners is: does the VAT exemption change depending on who is selling the product? The answer is no — but the compliance requirements differ significantly.
For Small Market Vendors (Palengke, Talipapa, Sidewalk Sellers)
If annual gross sales are below P3 million, the seller is naturally VAT-exempt and does not need to register for VAT.
The seller does not charge VAT on any sale, whether the product is VAT-exempt or VAT-able.
No separate tracking of exempt vs. taxable sales is required since the seller is not VAT-registered.
For Sari-Sari Stores and Small Retailers
Same rule applies — below P3 million annual gross sales means no VAT registration required.
Even if the store sells both VAT-exempt products (like fresh vegetables) and VAT-able products (like canned goods), no VAT is charged because the seller is not VAT-registered.
For Grocery Stores and Supermarkets (VAT-Registered, Above P3 Million)
The store must track and separate VAT-exempt sales from VAT-able sales.
Fresh meat, fish, fruits, and vegetables sold in their original state remain VAT-exempt even when sold by a large supermarket.
Processed or packaged versions of the same products (canned tuna, dried fish, fruit in syrup, frozen meat with seasoning) are generally VAT-able.
Input tax on purchases related to VAT-exempt sales cannot be claimed as a credit against output tax.
For Large Retailers and Chain Supermarkets
Same rules as grocery stores, but with more complex accounting systems.
POS (point-of-sale) systems must be configured to automatically identify which products are VAT-exempt and which are VAT-able.
Regular BIR filings (2550Q quarterly VAT return) must accurately report both exempt and taxable sales.
The Key Principle
The product determines the exemption, not the seller. A kilo of fresh galunggong is VAT-exempt whether sold by Aling Nena in the palengke or by SM Supermarket.
Checklist of VAT-Exempt vs. VAT-Able Products
Use this checklist to quickly determine which products are VAT-exempt and which are VAT-able. The general rule is: if the product is in its original, unprocessed state, it is likely VAT-exempt. If it has been processed, preserved, or packaged commercially, it is likely VAT-able.
VAT-EXEMPT Products (No 12% VAT)
Fresh meat (pork, beef, chicken, goat) — raw, unseasoned, not marinated
Fresh fish and marine products (galunggong, tilapia, bangus, tuna, shrimp, squid) — raw, fresh or chilled, not processed
Fresh fruits (mango, banana, papaya, watermelon, etc.) — raw, unprocessed
Fresh vegetables (kangkong, cabbage, tomatoes, onions, garlic, potatoes, etc.) — raw, unprocessed
Rice and corn grits — in their basic form
Cassava, sweet potato (kamote), other root crops — raw
Eggs — fresh, raw
Poultry — fresh, raw, not marinated or processed
Salt — basic, unprocessed
VAT-ABLE Products (Subject to 12% VAT)
Canned goods (canned tuna, canned corned beef, canned sardines)
Dried fish (daing, tuyo) — commercially processed
Frozen meat with seasoning or marinade
Processed meat (tocino, longganisa, hotdogs, ham, bacon, sausage)
Fruit preserves, jams, canned fruits
Pickled or fermented vegetables (atchara, commercially packaged kimchi)
Cooked or prepared food (lechon, grilled fish, cooked meals)
Bottled sauces, condiments, seasoning mixes
Beverages (soft drinks, juices in bottles or cans) and snack foods (chips, crackers, biscuits)
Important Note
The distinction between "fresh" and "processed" is critical. Fresh fish on ice is VAT-exempt. The same fish dried and packaged is VAT-able. Fresh pork is VAT-exempt. The same pork made into tocino is VAT-able.
Decision Criteria — How to Determine if a Product Is VAT-Exempt
When you are unsure whether a specific product is VAT-exempt or VAT-able, use these decision criteria to make the determination:
Criterion 1: Is the product in its original state?
If the product is in the same form as when it was harvested, caught, or slaughtered — it is likely VAT-exempt. Example: Fresh whole chicken is exempt. Marinated chicken with commercial seasoning is VAT-able.
Criterion 2: Has the product been processed or preserved?
Processing includes canning, drying, smoking, salting, pickling, fermenting, or adding preservatives. If any of these processes have been applied, the product is generally VAT-able. Example: Fresh bangus is exempt. Daing na bangus (dried milkfish) is VAT-able.
Criterion 3: Is the product cooked or prepared?
Any food that has been cooked, grilled, fried, or prepared for immediate consumption is VAT-able. Example: Raw pork liempo is exempt. Grilled liempo sold ready-to-eat is VAT-able.
Criterion 4: Is the product packaged commercially?
Commercial packaging with branding, nutrition labels, and barcodes typically indicates a processed product that is VAT-able. However, simple packaging (like plastic bags or basic containers for fresh produce) does not make a product VAT-able. Example: Tomatoes in a plastic bag are exempt. Tomato sauce in a branded can is VAT-able.
Criterion 5: Check BIR revenue regulations and rulings
When in doubt, consult the latest BIR revenue regulations, revenue memorandum circulars, or seek a BIR ruling. The BIR periodically issues clarifications on specific products. When uncertainty exists, it is safer to treat the product as VAT-able and charge VAT, then seek clarification.
Registration and Compliance Process for Sellers of Mixed Products
If your business sells both VAT-exempt and VAT-able products (like a grocery store or supermarket), you need to follow specific compliance steps:
Step 1: Determine if you need VAT registration
If your annual gross sales exceed P3 million, you are required to register for VAT. If below P3 million, you are naturally exempt from VAT but may optionally register. Once VAT-registered, you must track exempt and taxable sales separately.
Step 2: Classify your products
Create a master list of all products you sell. Classify each product as VAT-exempt or VAT-able using the decision criteria in Section 5. Update this list regularly as you add new products or as BIR rules change.
Step 3: Configure your POS system
Set up your point-of-sale system to automatically apply the correct tax treatment for each product. VAT-exempt products should show zero VAT on receipts. VAT-able products should show the 12% VAT separately on receipts. Test the system regularly to ensure accuracy.
Step 4: Track input tax
Input tax (VAT paid on purchases) can only be claimed as a credit against output tax for VAT-able sales. Input tax related to VAT-exempt sales cannot be claimed and should be treated as part of the cost of goods sold. If input tax is mixed (used for both exempt and taxable sales), you must allocate it proportionally.
Step 5: File VAT returns correctly
File BIR Form 2550Q (quarterly VAT return) and report both exempt and taxable sales. Use the correct columns for VAT-exempt sales, zero-rated sales, and taxable sales. Keep detailed records of all sales by category for audit purposes.
Step 6: Issue correct receipts
Receipts must clearly show which items are VAT-exempt and which include VAT. For VAT-exempt items, the receipt should indicate "VAT-EXEMPT" or show zero VAT. For VAT-able items, the 12% VAT should be itemized.
Step 7: Keep documentation
Maintain records of product classifications and the basis for each classification. Keep BIR rulings or revenue regulations that support your classifications. These documents are essential during a BIR audit.
Tips for Managing VAT Compliance
Maintain a product classification database
Keep a spreadsheet or database of all your products with their VAT status (exempt or taxable). Review and update it quarterly. This is your first line of defense during a BIR audit.
Train your staff
Make sure cashiers and store personnel understand which products are VAT-exempt. If a customer questions why fresh fish has no VAT but canned tuna does, your staff should be able to explain the difference confidently.
Use POS system features
Modern POS systems like Loyverse, StoreHub, or UtakPOS allow you to set tax rates per product. Take advantage of this feature to automate VAT calculations and reduce human error.
Separate exempt and taxable inventory
Where possible, organize your store layout to clearly separate fresh (VAT-exempt) sections from processed (VAT-able) sections. This helps both customers and staff understand the distinction.
Consult a tax professional
If your business has a complex product mix (like a supermarket with hundreds of SKUs), hire a CPA or tax consultant to review your VAT setup annually. The cost of professional advice is much lower than BIR penalties for incorrect VAT treatment.
Monitor BIR issuances
The BIR periodically releases revenue regulations and memorandum circulars that may add or remove products from the VAT-exempt list. Subscribe to BIR updates or check their website regularly.
Keep input tax records organized
For VAT-registered businesses selling mixed products, maintain clear records of which purchases relate to exempt sales (non-claimable input tax) and which relate to taxable sales (claimable input tax). This is one of the most common audit findings.
Document your reasoning
For any product classification that could be ambiguous (like dried fish vs. fresh fish), document your reasoning and cite the relevant BIR regulation. This shows good faith compliance if questioned.
Common Mistakes to Avoid
Assuming all food products are VAT-exempt
Many business owners wrongly believe that because fresh fish and vegetables are VAT-exempt, all food products are also exempt. This is incorrect. Processed, canned, dried, and cooked food products are generally VAT-able. Charging no VAT on these items can result in deficiency tax assessments.
Not tracking exempt and taxable sales separately
VAT-registered businesses that sell both exempt and taxable products must track sales by category. Mixing them together in accounting records makes it impossible to file accurate VAT returns and invites BIR penalties.
Claiming input tax on VAT-exempt purchases
Input tax paid on purchases that will be used for VAT-exempt sales cannot be claimed as a credit. Claiming it anyway is a common BIR audit finding that leads to deficiency tax assessments plus surcharges and interest.
Ignoring the P3 million threshold
Some businesses that exceed P3 million in annual gross sales fail to register for VAT. This is a serious violation. Once you cross the threshold, you must register within 30 days. Selling without VAT registration when required can lead to closure and penalties.
Treating marinated or seasoned meat as VAT-exempt
Fresh raw meat is VAT-exempt, but meat that has been marinated, seasoned, or processed (like tocino, longganisa, or ready-to-cook marinated chicken) is VAT-able. Many grocery stores incorrectly treat all meat products as exempt.
Not updating product classifications
BIR regulations change. A product that was previously VAT-able may become exempt, or vice versa. Failing to update your classifications can lead to either over-collecting VAT (alienating customers) or under-collecting (facing BIR assessments).
Forgetting that the exemption follows the product, not the seller
Some large retailers assume that because they are VAT-registered, all their sales are subject to VAT. This is wrong. VAT-exempt products remain exempt regardless of who sells them. A supermarket must not charge VAT on fresh vegetables.
Poor receipt documentation
Receipts that do not clearly show which items are VAT-exempt and which are VAT-able create problems during BIR audits. Every receipt should itemize the VAT treatment of each product.
Conclusion
Understanding which products are VAT-exempt and which are VAT-able is essential for any business that sells food and agricultural products in the Philippines. The key principles are simple: fresh agricultural products in their original state — like meat, fish, fruits, and vegetables — are VAT-exempt regardless of who sells them. Processed, canned, dried, or cooked versions of these products are generally VAT-able.
For small market vendors and sari-sari stores below the P3 million threshold, the rules are straightforward — no VAT registration is required, and no VAT is charged. But for grocery stores, supermarkets, and large retailers that are VAT-registered, the compliance requirements are more complex. These businesses must carefully classify every product, configure their POS systems, track exempt and taxable sales separately, manage input tax allocation, and file accurate VAT returns.
The most important takeaway is this: VAT exemption is determined by the product and its condition, not by the size or type of the seller. A kilo of fresh tomatoes is VAT-exempt whether sold by a palengke vendor or by the largest supermarket chain in the country. When in doubt about a specific product, consult the latest BIR revenue regulations or seek professional tax advice.
By following the checklist, decision criteria, and compliance steps outlined in this guide, you can ensure your business correctly handles VAT on agricultural products — avoiding penalties, keeping food affordable for customers, and maintaining clean compliance with BIR requirements.
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