BIR Ruling [DA-338-99]

June 7, 1999 BIR RULING [DA-338-99] Mr. Brian Hardaway PIB Corporation 511, Madrigal Building Escolta, Manila Gentlemen : This refers to your letter stating that you are a consultant to a group of investors who wish to set up a business in the Philippines for the importation and distribution of cigarettes. In this connection, you would like to seek an opinion or guidelines on the tax implications of the importation and distribution of cigarettes; as well as the requirements for registration of a new brand of cigarettes in the Philippines. In reply, please be informed of the following: 1) Section 129 of the Tax Code of 1997 provides as follows: "SEC. 129. Goods Subject to Excise Taxes . Excise taxes apply to goods manufactured or produced in the Philippines for domestic sale or consumption or for any other disposition and to things imported. The excise tax imposed herein shall be in addition to the value-added tax imposed under Title IV. . . ." In reaction to the foregoing, Section 131 of the same Code provides, viz: "SEC. 131. Payment of Excise Taxes on Imported Articles . (A) Persons Liable . Excise taxes oil imported articles shall be paid by the owner or importer to the Customs Officers, conformably with the regulations of the Department of Finance and before the release of such articles from the customhouse, or by the person who is found in possession of articles which are exempt from excise taxes other than those legally entitled to exemption. . . ." Corollarily, Section 8.2 of Revenue Regulations No. 1-97, as amended by Revenue Regulations No. 16-97 reads: "SEC. 8.2. For Imported cigars and Cigarettes . The excise tax on imported cigars and cigarettes shall be paid by the importer to the Customs Collector prior to the release of such goods from customs custody. "The release of imported cigars and cigarettes from customs custody shall not be allowed without the presentation to the Collector of Customs of the original copy of the appropriate Permit to Import duly issued by the Revenue District Officer having jurisdiction over the importer's principal place of business prior to importation and the verification by the authorized customs officer of actual affixture of the internal revenue stamps to each and every pack of cigars and cigarettes as prescribed under Section 6 of Revenue Regulations No. 1-97." It is from the above-cited sections flat the excise tax due on imported cigarettes shall be due and payable to the Bureau of Customs (BOC) before the cigarettes are withdrawn from the customhouse. However, the new rule requires that the filing of the excise tax return and payment of the tax due with the BOC, prior to the release of the goods from customs custody as provided in Section 131 of the Tax Code of 1997, the internal revenue strip stamps to be affixed to the cigarettes intended for shipment to the Philippines shall be issued to the importer of cigarettes provided that the Permit to Import the cigarettes has been secured from the Revenue District Office (RDO) which has jurisdiction over the importer's principal place of business. Accordingly, the internal revenue stamps to be affixed on each pack of imported cigarette shall be issued by the BIR to the importer upon the approval of the Permit to Import as required under Revenue Regulations No. 1-97, as amended by Revenue Regulations No. 16-97. (BIR Ruling No. 112-98 dated July 13, 1998) Moreover, it is to be noted that the excise tax imposed under Section 129 of the Code of 1997 on goods manufactured or produced in the Philippines for domestic sale or consumption or for any other disposition and to things imported shall be in addition to value-added tax imposed under Title IV of the said Code. Consequently, the importation as well as the distribution of imported cigarettes shall be subject to value-added tax based on the total value used by the Bureau of Customs in determining tariff and customs duties, excise taxes, if any, and other charges, such tax to be paid by the importer prior to the release of such goods from customs custody: Provided, That where the customs duties are determined on the basis of quantity or volume of the goods, the value-added tax shall be based on the branded cost plus excise taxes, if any (Sec. 107 of the Tax Code of 1997) However, with respect to import duty, it is suggested that you should address your query to the Bureau of Customs which has jurisdiction over the matter. 2) Finally, we are enclosing a copy of Revenue Memorandum Order No. 54-98 dated June 1, 1998 prescribing the various registration requirements to be submitted by taxpayer wishing to transact business with the Bureau. Please be guided accordingly. Very truly yours, (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal and Enforcement Group)