BIR Ruling

September 12, 1973 The Director Bureau of Commerce 126 E. Rodriguez, Sr. Blvd. Quezon City S i r : This is in reply to your letter dated August 21, 1973 informing this Office about the complaint of the Filipino retailers in Cebu City voiced during your conference thereat on August 17, 1973 to the effect that the Government should take a realistic look at the BIR taxes imposed on retailers. You stated that they feel that under present conditions, with BIR taxes imposed on retailers fully complied with, small retailers cannot even earn the minimum daily wage if they attend to their stores full time. As a consequence, one retailer suggested that the basis of the BIR tax payment should be changed from gross sales to net sales. cd Under Section 182(A)(2) of the Tax Code, as amended by Presidential Decree No. 69, a person who purchases locally for the purpose of resale (retailer or dealer) is subject to the graduated annual fixed tax, the initial amount of which is P10.00; thereafter, the amount of the tax will depend upon the amount of gross sales during the preceding calendar year, viz.: Ten pesos; if the amount of the gross annual sales does not exceed two thousand four hundred pesos; Twenty pesos, if the amount of the gross annual sales exceeds two thousand four hundred pesos but does not exceed ten thousand pesos; Forty pesos, if the amount of the gross annual sales exceeds ten thousand pesos but does not exceed thirty thousand pesos; (missing page #2) This fixed tax or privilege tax is a levy or tax laid upon those desiring to engage in business or pursue an occupation or profession. As it is a tax imposed for engaging in business, it is based on gross sales and not on net profit for the reason that the more sales a person makes the more taxes he pays. To base the fixed tax on net profit would negate the provisions of Sections 178 and 180 of the Tax Code. The provisions of Section 178 relative to the payment of the privilege tax is mandatory. So that the privilege tax is based on net profit, then there would be occasions where taxpayers may not be required to pay said tax because they either suffer losses or operate at break-even point. Besides, net profit is subject to the income tax. In the light of the foregoing, it is believed that the present provisions of the Tax Code subjecting retailers to the graduated annual fixed tax based on gross sales is more realistic and practical. Very truly yours, (SGD.) MISAEL P. VERA Commissioner of Internal Revenue TAN-1601-593-5 "TAXPAYERS SHOULD INDICATE THEIR TAN IN ALL COMMUNICATIONS TO THE BIR."