BIR Ruling

July 29, 1969 Carlos J. Valdez & Co. 1130 Perez St., Paco Manila Gentlemen : This refers to your letter dated June 27, 1969, requesting a formal ruling as to whether your client should pay the 7% manufacturer's tax or the 3% contractor's tax, based on the following facts, to wit: cdlex " FACTS : Our client is engaged in the business of manufacturing contact lenses on specific customer orders. The material used in the manufacture is imported, and this goes through an intensive grinding process to reduce the material to the desired specific eye measurement of customers as determined by expert company ophthalmologists. Manufacturing of the material for stock is not a profitable business practice since each human eye has distinct characteristics and dimensions; a minute deviation of the fitting of the contact lens from the prescribed specifications of the ophthalmologist could mean the discomfort or dissatisfaction of the user. In short, the business resembles the operation of a tailoring shop that manufacturers suiting materials on specific measurements of each specific customer. " QUERY : Based on the above facts, should our client pay the 3% contractor's tax? If so, should it therefore pay the compensating tax on the imported materials used in the manufacture, and not the advance sales tax?" In reply, I have the honor to inform you that under the foregoing set-up, your client is considered a manufacturer of contact lenses and, therefore subject to the fixed and percentage taxes prescribed by Sections 182(A) (1) and 186 of the Tax Code (BIR Ruling No. 65-067 dated June 18, 1965.) Consequently, your client's importation of materials used in the manufacture of contact lenses is subject to the advance sales tax. Very truly yours, (SGD.) MISAEL P. VERA Commissioner of Internal Revenue