BIR Ruling

May 24, 1966 Messrs. Valencia & Associates Certified Public Accountants 1116 Felix Huertas St. Sta. Cruz, Manila Gentlemen : This refers to your letter dated May 18, 1966, stating the following: "We have the honor to request for a clarification and a ruling from your office regarding Section 186(a) of the National Internal Revenue Code particularly raw materials purchased from local manufacturers and producers when the same is manufactured into shirts and other wearing apparel is the total cost of raw materials be deducted from the gross selling price of the said manufactured goods or articles? LexLib "Further more, in case of yarn purchased from local manufacturers or producers when the same is used as raw materials for the manufacture of thread, textile and fishing nets is the total cost of raw materials be deducted from the gross selling price of the manufactured goods or articles?" In reply, I have the honor to inform you that pursuant to Section 186-A of the Tax Code, whenever a tax-free product is utilized in the manufacture of production of any article, in the determination of the value of such finished article, the value of such tax-free product shall be deducted. Section 1 of Republic Act No. 4086 provides, among others, that the manufacture and sale of finished products thereof, by the textile industry in the spinning, weaving and finishing of raw fibers into yarn, shall be free of sales tax, subject to the conditions therein provided. Accordingly, the cost of raw materials purchased from tax-exempt industries, as duly established, and used in the manufacture of shirts and other wearing apparel is deductible from the gross selling price of such manufactured articles in determining the sales tax due thereon. Similarly, the cost of yarn used in the manufacture of thread, textile and fishing nets, as duly established, is deductible from the gross selling price of such manufactured articles in determining the sales tax due thereon. Very truly yours, (SGD.) MISAEL P. VERA Commissioner of Internal Revenue