BIR Ruling

December 23, 1969 Siguion Reyna, Montecillo, Belo Law Offices Ayala Avenue, Makati, Rizal Gentlemen : In reply to your letter dated February 4, 1969, requesting for a resolution of the various conflicting rulings of the Bureau of Internal Revenue with reference to petroleum solvents which were analyzed as "similar to naptha" but which were not used nor suited for use as motive power, please be informed that, after considering the memorandum of the PETROLEUM INSTITUTE OF THE PHILIPPINES, INC. together with the comment and recommendation of the Commissioner of Internal Revenue, this Department holds that such petroleum solvents and thinners are subject to tax under Section 186 and not under Section 142(c) of the Tax Code. prcd This Department believes that the issue involved here requires an administrative interpretation which harmonizes the demands of economic development and the provisions of the Tax Code. The historical backdrop in the interpretation of the particular provision should also be considered. It is apparent that if these articles are subjected to specific taxes, industrial users of thinners and solvents will have to raise their prices to cover the additional cost of materials. The consuming public may import the finished products which will be cheaper than those produced locally. Our local refineries will suffer a reduction in sales. prcd The Commissioner of Internal Revenue, in a memorandum dated November 6, 1969, stated that Section 142 of the Tax Code defines specifically the objects subject to tax: a. Refined oil b. Manufactured mineral oil c. Motor fuels Kerosene or petroleum in Section 142(a) is refined oil. Lubricating oil in Section 142(b) is manufactured mineral oil. Naptha, gasoline and all other similar products of distillation and denatured alcohol for motive power in Section 142(c) and (d), are motor fuels. The law, as worded, subjects naptha to specific taxes where used as motor fuel. cdll Furthermore, the tax imposed under Section 142(c) on naptha and gasoline has to be read in relation with the provisions of Section 361 of the same Code which states: "Sec. 361. Disposition of proceeds of taxes on motor fuel prescribed in sub-sections (b), (c) and (d) of section one hundred forty two of the Code shall be distributed as follows: . . ." The law is explicit on the point that such specific taxes provided under Section 142(b), (c) and (d) are taxes on motor fuels. The records in the Bureau of Internal Revenue show that then Collector Jose Aranas on August 13, 1956 penned a ruling subjecting thinners and solvents (naptha) to 7% sales tax under Section 186 of the Code. A similar ruling dated January 9, 1959 was issued by then Commissioner Melecio Domingo to the effect that the "products of distillation" mentioned in Section 142 of the Code refer to motor fuels. Premises, considered, this Office rules that petroleum thinners and solvents when not used for motive power are subject to 7% sales tax under Section 186 and not under Section 142(c) of the Tax Code. All prior rulings in this particular question are hereby set aside and proper notification shall be directed to all offices concerned to implement this decision. Very truly yours, (SGD.) EDUARDO Z. ROMUALDEZ Secretary of Finance