BIR Ruling [DA-133-04]

March 26, 2004 BIR RULING [DA-133-04] 145; 015-02 Capitol Tobacco Corporation 132 11th Street, 11th Avenue Grace Park Caloocan City Attention: Mr. Peterson C. Tan President Gentlemen : This refers to your letter dated October 24, 2003 stating that Bonus Menthol 100'S with an over-all length of 100mm (85mm without filter), to be packed in 20's is a cigarette brand manufactured and distributed by Capitol Tobacco Corporation; that the brand was first introduced in the market in March 1988 or prior to the effectivity of R.A. No. 8424; that the brand was previously classified under the P1.00 tax bracket by the BIR for purposes of computing the excise tax liability imposed under Section 145 of the Tax Code of 1997; that in the beginning of the year 2000, however, the distribution of the brand in the market stopped and the brand became inactive ever since; and that the Company decides to reintroduce the brand in the market with a suggested net retail price per pack of P6.60, inclusive of VAT and excise tax. Based on the foregoing representations, you would like to request for an opinion that the brand of Bonus Menthol 100'S would still be classified under the P1.00 tax bracket if your company later decides to reintroduce the brand in the market. In reply thereto, please be informed that for excise tax purposes, cigarette brands are grouped into three (3) categories, existing brands , new brands and variants of existing brands. Thus, the meaning of "Duly registered or existing brands of cigarettes" include duly registered, existing, or active brands of cigarette prior to January 1, 1997. ( Sec. 2(3), Revenue Regulations No. 1-97, January 1, 1997 ) The classification of existing brands of cigarettes, as well as their specific tax per pack, is already fixed by law. It is based on Their average net retail price as of October 1, 1996. This classification shall remain enforced until revised by Congress. (see Sec. 145 and Annex "D" of the Tax Code of 1997 ) On the other hand, "New brands" of cigarettes refer to brands duly registered after January 1, 1997, which include duly registered but inactive brands of cigarettes not sold in commercial quantity prior to January 1, 1997. ( Sec. 2(6), Revenue Regulations No. 1-97 ) New brands are classified according to their current net retail price. In the meantime that the current net retail price has not yet been established, the suggested net retail price shall be used to determine the specific tax classification. Thereafter a survey shall be conducted in 20 major supermarkets or retail outlets in Metro Manila (for brands marketed nationally) or in 5 major supermarkets or retail outlets in the region (for brands marketed only outside of Metro Manila), 3 months after the initial removal of the new brand to determine the actual net retail price excluding the excise tax and the value-added tax which shall then be the basis in determining the specific tax classification. (Sec. 4(B), Revenue Regulations No. 1-97) . Finally, "Variant of a brand" refers to a brand on which a modifier is prefixed and/or suffixed to the root name of the brand and/or a different brand which carries the same logo or design of the existing brand. Variants of existing brands of cigarettes which are introduced in the domestic market after January 1, 1997 shall be taxed under the highest classification of any variant of the brand. (Sec. 145, Tax Code of 1997, as implemented, by Section 2(8), Revenue Regulations No. 1-97) Thus, Section 145 of the Tax Code of 1997 provides that "(C) Cigarettes packed by machine . There shall be levied, assessed and collected on cigarettes packed by machine a tax at the rates prescribed as follows: "(1) If the net retail price, (excluding the excise tax and the value-added tax) is above Ten pesos (P10.00) per pack, the tax shall be Twelve pesos (P12.00) per pack; "(2) If the net retail price (excluding the excise tax and the value-added tax) exceeds Six pesos and fifty centavos (P6.50) but does not exceed Ten pesos (P10.00) per pack, the tax shall be Eight pesos (P8.00) per pack; "(3) If the net retail price (excluding the excise tax and the value-added tax) is Five pesos (P5.00) but does not exceed Six pesos and fifty centavos (P6.50) per pack, the tax shall be Five pesos (P5.00) per pack; "(4) If the net retail price (excluding excise tax and value-added tax) is below Five pesos (P5.00) per pack, the tax shall be One peso (P1.00) per pack; "Variants of existing brands of cigarettes which are introduced in the domestic market after the effectivity of R.A. No. 8240 shall be taxed under the highest classification of any variant of that brand. "The rates of specific tax on cigars and cigarettes under paragraphs (1), (2), (3) and (4) hereof shall be increased by twelve percent (12%) on January 1, 2000. "New brands shall be classified according to their current net retail price. For the above purpose, "net retail price" shall mean the price at which the cigarette is sold on retail in twenty (20) major supermarkets in Metro Manila (for brand of cigarettes marketed nationally), excluding the amount intended to cover the applicable excise tax and the value-added tax. For brands that are marketed only outside Metro Manila, the "net retail price" shall mean the price at which the cigarette is sold in five (5) major supermarkets in the region excluding the amount intended to cover, the applicable excise tax and the value-added tax. The classification of each brand of cigarettes based on its average net retail price as of October 1, 1996, as set forth in Annex "D", as amended by Revenue Memorandum Circular No. 6-2003, shall remain in force until revised by Congress." It is clear from the foregoing that Bonus Menthol 100'S is an existing brand within the contemplation of Revenue Regulations No. 1-97, amending Annex "D" of R.A. No. 8424, since the said brand has been duly registered, existing or active brand of cigarette even prior to January 1, 1997. Thus, when Capitol Tobacco Corporation decides to reintroduce Bonus Menthol 100'S in the market at the rate of P6.60 per pack, inclusive of VAT and excise tax, or P4.94 per pack, the specific tax rate of P1.00 per pack should be applied as the classification of existing brands of cigarettes, as well as the specific tax per pack is already fixed by law based on the net retail price as of October 1, 1996. aETASc SUCH BEING THE CASE, this Office holds that Bonus Menthol 100'S is an existing brand subject to the specific tax rate of P1.00 per pack as prescribed in Section 145 of the Tax Code of 1997, as amplified in Revenue Regulations No. 1-97. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group