BIR Ruling

January 10, 1973 Mr. Francisco J. Elizalde Certified Public Accountant Rm. 417 Mercedes Building Plaza Miranda, Quiapo Manila S i r : This refers to your letter dated December 28, 1972 requesting clarification of BIR Ruling No. 71-019, dated September 9, 1971 particularly as to which of the following two opinions is correct, viz.: " Opinion No . 1 In the computation of the percentage sales tax due, the cost of the tax-free materials used is deducted from the cost of the finished products and the balance derived as the net cost of the finished product is deducted from the gross sales to arrive at the taxable sales amount on which the percentage sales tax is based. If the raw materials used is 100% tax-free, then the percentage sales tax due is based on the gross sales. aisa dc " Opinion No . 2 The cost of the finished products, where the raw materials used are tax-free, is deductible in toto from the gross sales to arrive at the taxable sales." In reply, I have the honor to inform you that neither of the two opinions above is correct. Under Section 186-A of the Tax Code, whenever a tax-free product is utilized in the manufacture or production of any article, in the determination of the value of such finished article, the value of such tax-free product shall be deducted. It simply means that if a tax-free product is used in the manufacture of an article, the cost of such tax-free raw material and/or product is deducted from the gross selling price of the finished article in the determination of the sales tax due on the sale of such finished article. cdi Very truly yours, (SGD.) MISAEL P. VERA Commissioner of Internal Revenue