BIR Ruling

December 22, 1969 Francar Customs Brokerage Suite 407 Rosario Bldg. Rosario St., Manila Gentlemen : This refers to your letter of even date requesting information as to the rate of advance sales tax due on Coral Branch and Westwell Branch speakers, imported by your client, Island Enterprises. In reply, I have the honor to inform you that the rate of tax leviable on imported speakers or other articles considered parts or accessories of both photographs and radio receiving sets shall depend upon the destination thereof. Where the articles are imported for resale, as is, the same are invariably subject to the 7% advance sales tax. Speakers are admittedly parts and accessories of both phonographs and radios. Imported phonograph and parts and accessories thereof are subject to the 40% advance sales tax and radio receiving sets and parts and accessories thereof to the 7% tax, pursuant to Sections 185-B and 186 of the Tax Code, respectively, as amended by Republic Act No. 6110. In accordance with the provisions of the same sections of the Tax Code as amended, where the articles enumerated therein are manufactured out of materials subject to tax thereunder, the total cost of such materials, as duly established, is deductible from the gross selling price or gross value in money of such manufactured articles. In other words, the cost of raw materials is deductible, for purposes of the sales tax, only when they have been subjected to tax under the same section to which the manufactured articles belong. From the foregoing context of the law, where speakers are imported by manufacturers of phonographs, the proper rate of tax should necessarily follow the rate to which phonographs are subject, that is 40%. Similarly, where they are imported by manufacturers of radio receiving sets, the rate of tax should be 7%. LexLib Applying the foregoing rule, and it appearing that the speakers imported by your client will be sold, as is, the same are subject to the 7% advance sales tax based on the landed cost thereof plus 25% mark-up pursuant to Section 183(b) in relation to Section 186, both of the Tax Code. Very truly yours, (SGD.) MISAEL P. VERA Commissioner of Internal Revenue