BIR Ruling [DA-450-06]

July 21, 2006 BIR RULING [DA-450-06] 151; DA-138-2003 Mr. Jaime B. Santiago, CESO V Regional Director Bureau of Internal Revenue Revenue Region No. 13 Cebu City S i r : This has reference to your 1st Indorsement dated January 2, 2006 requesting for clarification and legal opinion on the basis in computing the excise tax relative to the Agreement/Contract for the Removal and Disposal of Sediment Deposits from the MCWD Maghaway Water Supply Facility executed on September 29, 2003 between the Metropolitan Cebu Water District and WTG Construction and Development Corporation. Per Memorandum of Mr. Levi C. Ravelo, Revenue Officer 1, noted by Mr. Oscar R. Anda, Head, EXTA IV, RR 13 & 14, verification disclosed that based on the Contract between MCWD and WTG Construction & Development Corporation, the actual payment of extraction fee as local tax reflected the amount of P20.00 per cubic meter for sand and grave and P5.00 per cubic meter for silt; that per observation of your Office, the same amounts to 10% of the fair market value of the sand and gravel and silt; and that your Office recommends that excise tax should be based on the fair market value of P200.00 and P50.00 and not on the bid price as stipulated in the contract of the parties. IHEaAc In reply, please be informed, that Section 151(A)(2) of the 1997 Tax Code provides that "(A) Rates of Tax. There shall be levied, assessed and collected on minerals, mineral products and quarry resources excise tax as follows: "(1) . . . "(2) On all nonmetallic minerals and quarry resources, a tax of two percent (2%) based on the actual market value of the gross output thereof at the time of removal, in the case of those locally extracted or produced; . . . Moreover, Section 151 (B)(4) of the same Code defines "quarry resources" as follows: "(4) 'Quarry resources' shall mean any common stone or other common mineral substances as the Director of the Bureau of Mines and Geo-Sciences may declare to be quarry, resources such as, but not restricted to, marl, marble, granite, volcanic cinders, basalt, tuff and rock phosphate: Provided, That they contain no metal or metals or other valuable minerals in economically workable quantities. Section 2(h) of Revenue Regulations No. 13-80 dated November 7, 1980 or the Regulations Governing the Taxation of Minerals and Mineral Products implementing B.P. Blg. 84 contains the foregoing definition and also provides, in the second paragraph thereof, that quarry resources include sand and gravel whether removed from river beds or quarried." Such being the case, said products are subject to the then 3% excise tax based on the actual market value of the annual gross output thereof at the time of removal of those locally extracted or produced. (BIR Ruling Nos. 138-2003 dated April 29, 2003 and 103-90 dated May 29, 1990) In view of the foregoing, WTG Construction and Development Corporation is subject to the 2% excise tax imposed under Section 151(A)(2) of the 1997 Tax Code based on the actual market value of the gross output thereof at the time of removal. 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 as null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service