BIR Ruling

February 4, 1969 Mr. Jose Angliongto General Manager Continental Containers Corp. Airport Drive, Sasa Davao City S i r : This refers to your letter dated August 30, 1968 requesting information as to the basis of taxes you pay as manufacturer of 5-gallon tin cans for various oil companies under the following facts. prcd Facts: (Case example) A. Caltex (Phils.) Inc. proposed to us to manufacture for them 5-gallon tin can at P1.65 per tin with all raw materials supplied by us; B. We are to buy the tinplates from Elizalde & Co. at P1.20 per tin; Elizalde & Co. being the manufacturer of the tinplate have added the 7% sales tax or manufacturer's tax in the tinplates sold; C. We will import the other raw materials such as tin ingots and wire handle at the cost of P0.135 per tin of which the advance sales tax is paid upon importation; D. The labor cost of processing the raw materials into 5-gallon tin can is P0.265 per tin including delivery. In reply, I have the honor to inform you as follows: A As manufacturer of the 5-gallon tin cans, the 7% manufacturer's tax should be based on the gross selling price or gross value in money of the tin cans sold less the cost of materials previously subjected to the 7% sales tax. Thus the sales tax is computed as follows: Gross selling price of one tin can P1.650 Less: Cost of materials (a) tinplates (per tin) P1.200 (b) imported raw materials .135 P1.335 Total deductible cost of materials 1.335 Balance subject to sales tax 0.315 Sales tax due thereon P0.02205 ======= B The raw materials on which the 7% advance sales tax has already been levied are not subject to the 7% manufacturer's tax but what is to be subjected to the 7% manufacturer's tax are the finished product made out of such imported raw materials. It is for this reason that the cost of taxpaid raw materials is deductible from the gross sales of the finished product. C The cost of the tinplates on which the 7% sales tax was paid by Elizalde & Co. as manufacturer of tinplates that you bought from them will be deducted from your gross sales for purpose of computing the sales tax due on your manufactured tin can. D There is no difference between the 7% sales tax and the 7% manufacturer's tax for the so-called 7% sales tax is the same tax imposed on manufacturers for the sale of their manufactured or finished products. E Based on the case example presented, you should compute the 7% manufacturer's tax on the P1.65 per tin less the cost of raw materials. The cost of processing is not deductible. aisadc Very truly yours, (SGD.) MISAEL P. VERA Commissioner of Internal Revenue