BIR Ruling

November 18, 1968 Mr. J. C. Ventigan Resins Incorporated P.O. Box 2534 Manila S i r : This refers to your letter posing the following queries: "I. a) If we import crude oil or fuel oil and other similar fuel oils which we will use in the manufacture of products subject to the sales tax are we exempted from paying the specific tax.? b) If we are exempted from paying the specific tax, can we deduct the cost of the crude oil or fuel oil and similar fuel oils in computing the sales tax? c) If the answer to (a) is no, why? d) If the answer to (b) is either yes or no, how is the sales tax computed? "II. a) If the oil companies pay the specific tax on their production of fuel oil and other similar fuel oils, do they also pay the sales tax on their sales of these products to consumers or manufacturers? b) If the answer to (a) is yes, how is the sales tax computed? "III. Referring to the exemption granted to the oil companies in their importation of raw material (crude oil), why are other manufacturers not exempted from paying the advance sales tax if they also pay the sales tax on their manufactured products, in the same manner that these oil companies are exempted from paying the specific tax on imported crude oil?" In reply, I have the honor to inform you as follows: 1. Your importation of crude oil which you will use in the manufacture of products subject to the sales tax is exempt from the payment of specific tax but the same importation shall be subject to 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. However, if the crude oil and other similar fuel oils you import fall within the purview of either Section 142 or Section 144 of the Tax Code the same shall be subject to the specific tax provided therein, regardless of whether or not such articles shall be used as raw materials in the manufacture of articles subject to sales tax. The sales tax shall be based on the gross selling price of the manufactured product. The cost of raw materials is deductible only when they have been previously taxed under the same section under which the manufactured articles are taxed. As crude oil is subject to the percentage tax, the cost of such raw materials is deductible from the gross selling price or gross value in money of the manufactured articles for purposes of the sales tax. However, if the crude oil and other similar fuel oils are subject to the specific tax as aforesaid, the cost thereof cannot be deducted in determining the sales tax due on the manufactured articles. II. The oil companies are not subject to sales tax on the sale of the fuel oils or similar products that they manufacture, the specific tax on which have already been paid. III. With respect to your last query the rule is: Crude oil is considered an ordinary article, and therefore, the same is subject to the 7% sales tax prescribed by Section 186 of the Tax Code. If the crude oil, or other similar product is imported by an oil company, to be used by said importer in the manufacture of articles on which it will pay the corresponding specific tax, such article is not subject to the payment of specific and advance sales taxes pursuant to Section 183(B) of the Tax Code. However, those importations of crude oil by non-manufacturers of petroleum products to be used in the manufacture of articles subject to sales tax are necessarily subject to the payment of the advance sales tax pursuant to Section 183(B) in relation to Section 186 of the Tax Code. However, imported manufactured fuel oils are subject to specific taxes, irrespective of whether the same are imported for motive power or to be used as raw materials in the manufacture of articles subject to the sales tax. cdta Very truly yours, (SGD.) MISAEL P. VERA Commissioner of Internal Revenue