BIR Ruling

May 23, 1969 The Revenue Director Revenue Region No. 9 San Pablo City S i r : There is returned herewith the docket bearing on the deficiency sales tax liability of Mr. Jacinto Reyes of Tanauan, Batangas for the year 1961. cdt A close perusal of the papers of the case disclosed that the only issue to be resolved in this case is the correct manner by which the sales tax is computed. It is observed that the computation of the sales tax appears still controversial to some BIR officials and employees, including the taxpayers themselves. As it appears, the Director and the Revenue District Officer cannot see eye to eye as to the manner the sales tax liability of Mr. Reyes should be computed. This Office does not find it necessary to reconcile the conflicting views of the Director and District Officer. For your information and guidance, the sales tax is computed on the basis of the gross selling price less the total cost of raw materials used in manufacture which had been previously subjected to the same rate of tax as the finished product. Where raw materials are imported, the deductible cost of said raw materials consists of the landed cost plus the corresponding mark-up. The advance sales tax paid is not considered as part of the deductible cost of the imported raw materials. Where raw materials are locally purchased, the deductible cost thereof consists of the actual purchase price, but before the cost of locally purchased raw materials should be allowed as deduction; such cost must be duly established by the corresponding sales invoices of the sellers thereof. For purposes of deduction, only the cost of raw materials that are utilized as ingredient in the manufacture of the finished product is allowable. Supplies used in manufacture which do not enter into the finished product are not raw materials for purposes of the sales tax, and therefore, the cost of such supplies are not deductible. Take action accordingly. prcd Very truly yours, (SGD.) MISAEL P. VERA Commissioner of Internal Revenue