BIR Ruling

January 9, 1973 Kooler Industries 731 Aurora Blvd. Quezon City Attention: Mr . Cezar F . P . Corcuera Treasurer Gentlemen : This refers to your letter dated November 18, 1972 stating that your company intends to manufacture revolutionary Filipino-designed watercooler for distribution to both the domestic and foreign markets on a lease or sale basis; that said watercooler will be locally manufactured except for its compressor unit which may either be imported or purchased from local suppliers. Under the foregoing circumstances, you would like to be informed of the following: "I. Domestic Sales 1. What taxes are we subject to on original sales? 2. Given the above information, may our product be considered an integrated manufactured product as embodied in Sec. 185-A of the Internal Revenue Code? If so, what steps should we take in order that we can be classified as such? "II. Foreign Sales 1. What taxes are we supposed to pay for all export sales? 2. As a dollar-earning activity, what tax incentives/benefits may be availed of by your company? How do we avail of these tax benefits? "III. Domestic Lease of Watercooler Drinking Fountain. 1. What taxes, if any, are we supposed to pay for leasing our product to different customers/locations?" In reply, I have the honor to inform you that under Section 185-A of the Tax Code, as amended by Presidential Decree No. 69, effective January 1, 1973, watercooler is subject to the 40% sales tax. However, if the water cooler you manufacture comes under the classification of non-integrated product as defined therein, the same shall be subject to 15% sales tax; and if your manufactured water cooler comes under the classification of an integrated manufactured product as defined therein, the same shall be subject to the 7% sales tax. Under said section, the words "integrated manufactured products" means articles manufactured in a manufacturing enterprise which undertake the operations of processing and/or physically converting raw materials such as metal sheets, plastic pellets, wires, rods, extrusion tubings, castings, forgings and chemical compounds into various intermediate components and parts, and subsequently assembling or fitting them together into completed and finished articles: Provided , however, That not less than eighty per centum of the components and parts of the main assembly of the products are manufactured domestically: Provided , further , That not less than sixty per centum of the components and parts of each main assembly of the products are manufactured by said manufacturing enterprise. The words "non-integrated manufactured products" mean articles manufactured in a manufacturing enterprise which undertakes the operations of a manufacturing plant as defined in the preceding paragraph: Provided , however , That not less than fifty per centum of the components and parts of each main assembly of the products are manufactured domestically: Provided , further , That not less than thirty per centum of the components and parts of each main assembly of the products are manufactured by the said manufacturing enterprise. The number of main assemblies which shall comprise a product and the intermediate components and parts of each said main assembly shall be determined by the Board of Investments. cdt Your export sales of the same is exempt from the sales tax pursuant to Section 188(e) of the Tax Code. For leasing the watercooler that you manufacture, you are a contractor subject to the annual fixed tax of P50.00 prescribed in Section 182(A)(1) of the Tax Code, and your gross receipts derived from leasing said watercoolers is subject to the 3% contractor's tax pursuant to Section 191 of the Tax Code, as amended by Presidential Decree No. 69. Very truly yours, (SGD.) MISAEL P. VERA Commissioner of Internal Revenue