BIR Ruling

August 24, 1967 The General Manager Ducon Fibers, Inc. Rm. 209 DBP Bldg. No. 2 Port Area, Manila S i r : This refers to your letter dated July 27, 1967 stating the following: "We are a corporation organized for the purpose of manufacturing abaca burlap and sacks for copra, rice, corn, etc. Our plant would in the very near future be in full operation. Presently, we are preparing our studies and projections of our project and we are confronted with the problem of the 7% percentage or manufacturers tax. It is our view that under the provisions of Section 186 of the National Internal Revenue Code (Commonwealth Act No. 466, as amended), the total cost of our raw materials (abaca) shall be deductible from gross selling price or gross value in money of our manufactured product. We peg our view on the fact that abaca fibers are subject to percentage tax and, since we are not the producers of fibers, the 7% sales tax due on said fibers are deemed to be payable by the producers or sellers thereof. There are, however, some people, we have consulted, who hold the contrary view and maintain that the 7% shall be based on the total price or gross value in money of our manufactured articles. "In view of the foregoing, in order that we may be guided properly in the preparation of our tax papers, as well as the studies we are conducting now, we would request for an opinion from your goodselves as to which of the two (2) views is correct in this matter." In reply, I have the honor to inform you that abaca fiber is an agricultural product, hence, exempt from the payment of the sales tax pursuant to Section 188(b) of the Tax Code. Such being the case, the cost of abaca fiber used in the manufacture of burlap and sacks is not deductible for purposes of the sales tax if the abaca fiber is purchased from the producers thereof. However, if the abaca fiber is manufactured by non-producers out of the abaca stalks purchase from the producers thereof, then the said fiber manufacture is subject to the 7% sales tax. And if you purchase the fiber from the abaca fiber manufacturer, then the cost thereof, as duly established, shall be deductible from the gross selling price of your manufactured products for purposes of determining the 7% sales tax due thereon. cdtech Very truly yours, (SGD.) MISAEL P. VERA Commissioner of Internal Revenue