BIR Ruling

August 2, 1973 Enriton Food Products, Inc. 3-D Diamond Tower 1211 Magdalena Street Manila Attention: Mr . Enrique Co Cedenio General Manager Gentlemen : This refers to your letter dated July 5, 1973 stating that you are engaged in the manufacture of salted fish (bagoong) out of raw fish purchased from fishermen and from the market; that you also manufacture fish sauce (patis) out of salted fish you produce or of salted fish purchased from other manufacturers; that to produce fish sauce, the salted fish is stored in concrete tanks for aging and seasoning until a clear, brownich-yellow, separable liquid appears; that the liquid is set aside ready for bottling without adding any ingredient; and that this patis is the special quality. It is further represented that the residue of the stored salted fish from which the liquid (patis) is removed is then boiled in water and the liquid extracted; that the liquid is suited with salt and some preservative ingredients; that after aging and seasoning, it is ready for bottling; and that this patis is the ordinary quality. aisadc Under the foregoing facts, you would like to be informed whether or not the cost of the following are deductible from the gross selling price of the manufactured products in computing the sales tax thereof, viz: 1. The cost of raw fish used in the manufacture of salted fish. 2. The cost of salted fish purchased from other manufacturers used in the manufacture of fish sauce. 3. The cost of cans and glass or plastic jars as containers of salted fish, or bottles as containers of salted fish, or bottles as containers of fish sauce, or closures for jars and bottles and of labels on cans, jars or bottles. cdta In reply, I have the honor to inform you as follows: 1. The cost of raw fish purchased from the fishermen or from the market is deductible in determining the 5% sales tax due on the sales of your manufactured salted fish (bagoong) and fish sauce (patis). However, in order to establish the deductible cost of the raw fish purchased from fishermen or market fish vendors who do not issue invoices, you are required to comply with the following provision of Section 14 of Revenue Regulations No. V-1, otherwise known as the Bookkeeping Regulations, as amended by Revenue Regulations No. 4-65, viz: "Every purchase or expenditure by a taxpayer subject to these regulations shall also be supported by an invoice or a receipt issued by the vendor or the person rendering the service. In case an invoice or a receipt is not issued, the taxpayer concerned shall require the vendor to sign a purchase or expense voucher showing the date, the quantity and description of the articles purchased or the services rendered, the rate of tax to which the articles were subjected, if subjected to the advance sales tax in the case of importation or to the sales tax in the case of locally manufactured or produced articles, the consideration paid therefor, and the name and address of the vendor or person rendering the service together with the number, date and place of issue of his residence certificate." 2. Similarly, the cost of salted fish purchased from other manufacturers used in the manufacture of your fish sauce product in deductible from the gross selling price thereof. 3. Containers which are indispensable to the commodity to be sold are, as a rule, considered raw materials and, therefore, the total thereof on which the 7% sales tax had been previously paid is deductible from the gross selling price of the manufactured articles contained therein. Such being the case, the total cost of cans, glass, plastic jars together with the enclosures which are used as containers of your manufactured products which are used as containers of your manufactured products is deductible from the gross sales thereof, for purposes of the sales tax. However, in the case of labels, the rule is if you purchase the paper to be used as labels of your products and cause the printing of the designs and letters to the paper, the cost of the paper is deductible from the gross selling price of your manufactured products. On the other hand, if the labels are purchased from printers, the cost thereof is not deductible from the gross selling price of your manufactured products. 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."