BIR Ruling

May 14, 1975 Mr. Cecilio Reyes Uy Certified Public Accountant 1278 Jose Abad Santos St. Manila S i r : This refers to your letter dated April 22, 1975 requesting clarification as to whether imported crude paraffin wax is subject to specific tax under Section 142 (i) of the Tax Code, as amended by Presidential Decree No. 392, or to the 7% sales tax under Section 186 of the same Code. cdt It is your opinion that crude paraffin wax, a raw material used in the manufacture of candles, wax paper, matches, crayon, etc. is not subject to specific tax under Section 142(i) of the Tax Code, as amended, on the ground that what are subject to tax under said section are refined and manufactured mineral oils and motor fuels. In reply, I have the honor to inform you as follows: Section 142(i) of the Tax Code, as amended by Presidential Decree No. 392, provides as follows: "Sec. 142. Specific tax on manufactured oils and other fuels . On refined and manufactured mineral oils and motor fuels, there shall be collected the following: "i) Greases, waxes, and petrolatum, per kilogram, thirty-five centavos." The title of Presidential Decree No. 392 runs as follows: INCREASING THE SPECIFIC TAX ON KEROSENE, LUBRICATING OIL, GASOLINE, BUNKER FUEL OIL AND DIESEL FUEL OIL AND IMPOSING SPECIFIC TAX ON OTHER REFINED AND MANUFACTURED MINERAL OILS BY AMENDING SECTIONS 142, 144 AND 145 OF THE NATIONAL INTERNAL REVENUE CODE AS AMENDED. Among the statements in the declaration of policy of Presidential Decree No. 392, are the following: "WHEREAS, in order to improve and simplify tax administration, it is desirable to adopt a uniform tax treatment for all refined and manufactured petroleum products; "WHEREAS, the increase in tax on motor fuels and oils is consistent with the present policy to conserve fuel." In determining whether imported crude paraffin wax is subject to specific tax or to the sales tax, it is important to know the nature, characteristic and uses of paraffin wax. cd "Paraffin, a colorless or white, waxlike substance, a solid at ordinary temperatures, which is odorless and tasteless and slightly greasy to touch. It is obtained from certain types of paraffin-base petroleum oils, such as Pennsylvania crudes (not from asphaltic oils, as produced in Mexico and California), and sometimes from shale oil. Crude petroleum oils is subject to a process of fractional distillation, by which gasoline, kerosene, gas oil, paraffin distillate, and lubricating oils are successively obtained. The paraffin wax is separated from the gas oil and lubricating oils, which also contain paraffin, by a process of chilling, followed by filtration. When the paraffin-containing oil is refrigerated, the wax crystallized out. If a solvent such as methyl ethyl ketone, which is a good solvent for oil and a poor one for wax, is added to the paraffin-bearing oil, the separation is facilitated. The Paraffin is further refined by recrystallization from solvent . "One of the outstanding physical characteristic of paraffin is its resistance to water and water vapor. More than half the paraffin produced is used as a coating for paper (milk cartons, frozen food containers). Paraffin has important uses in the manufacture of drugs and cosmetics (lipstick, ointments) and candles. It is also used for electrical insulation. ". . . The chlorination of paraffin is used to produce methyl chloride, a refrigerant and solvent, ethyl chloride for tetraethyl lead manufacture, and chlorinated paraffin waxes for use as high-pressure lubricants . . ." (Vol. 21, pages 274d 274d, Encyclopedia American) On the other hand, wax is defined, viz: "Wax any of a number of natural or synthetic substances that are oily, greasy, insoluble in water, and very sensitive to changes in temperature. Waxes differ widely in chemical composition. Some waxes are esters of high-molecular-weight fatty acids. An ester is one of the products of a reaction between an acid and alcohol. These waxes may be animal, vegetable, or mineral in origin. Some waxes obtained from petroleum and therefore are hydrocarbon. "The petroleum waxes are produced mainly from petroleum lubricating oils in a process called dewaxing. Petroleum waxes are divided into three groups: paraffin waxes, microcrystallin waxes, and petrolatum." (Vol. 19, pages 351-352, Merit Students Encyclopedia, 1974 Edition) "Microcrystallin waxes, which are closely related chemically to paraffin but have higher melting points, are obtained from residual oils from the distillation of crude petroleum oil." (Vol. 21, p. 274e, Encyclopedia Americana) From the title of the law and the declaration of policy as hereinabove quoted, and considering the nature, characteristic and uses of paraffin waxes and the definition and classification of waxes as stated above, it is the opinion of this Office as it hereby holds that only waxes which are used as high-pressure lubricants and microcrystallin waxes are subject to the specific tax prescribed in Section 142(i) of the Tax Code, as amended by PD 392. Accordingly, imported crude paraffin waxes which are used as raw materials in the manufacture of candles, wax paper, matches, crayons, drugs, ointments, etc. are subject to the 7% advance sales tax, the tax to be based on the landed cost thereof plus 25% mark-up pursuant to Section 183(b) in relation to Section 186, both of the Tax Code. aisa dc Very truly yours, (SGD.) MISAEL P. VERA Commissioner of Internal Revenue TAN 1601-593-5