JOAVI Philippines Corporation

November 27, 2009 BIR RULING [DA-(EXT-008) 713-09] Sec. 150 (c), Excise Tax; 001-04 JOAVI Philippines Corporation Military and Law Enforcement Solutions Unit 8J Tower II, Crescent Park West Forbeswood Heights, Bonifacio Global City Taguig, Metro Manila Attention: Mr. Anthony Hernandez Managing Director Gentlemen : This refers to your letter requesting, in effect, for a ruling whether or not the imported inflatable rescue rubber boats are properly classified by the Bureau of Customs as vessels subject to the excise tax imposed under Section 150 of the Tax Code of 1997, as amended. The facts as represented are as follows: JOAVI Philippines Corporation ("JOAVI", for brevity) is an entity organized and incorporated under the laws of the Republic of the Philippines. Its primary purpose is to supply basic and essential tools and equipments needed in the military, law enforcement, local government units (LGUs) and National Government Agencies/Entities. In the course of its business, some LGUs, National Government Agencies/Entities and other organizations, like the National Red Cross, ordered from JOAVI rescue and inflatable boats to be used in their operations of providing basic needs and services to the people during typhoons, floods and other natural calamities. Said items were all shipped from China, subsequently and upon arrival of the same to the country, the corresponding tariff and customs duties were paid and settled. However despite payment of the required tariff and customs duties, the Bureau of Customs ("BOC") refused to release the items, resulting in the delay of delivery to their intended recipients. JOAVI was informed by the BOC that pending payment of the alleged excise tax imposed against the said items under the 1997 Tax Code, the BOC will not release the same. HETDAC In view thereof, you are requesting confirmation of your opinion that the subject rubber and inflatable rescue boats are articles not subject to excise tax. The BOC wrongly classified the same as items subject to excise on the following grounds: 1. The enumeration of non-essential goods subject to excise tax under Section 150 of the Tax Code, as amended, did not mention the aforementioned rescue or inflatable rubber boats or similar ones as among those items subject to excise tax; 2. Rescue or inflatable rubber boats do NOT fall under the category of Yachts and other vessels intended for pleasure or sports as the same is not a vessel at all since there is no engine to speak off. Admittedly, while rubber boats can be use with the help of an engine, the engine itself is not an integral part of the unit. In fact, rubber boats can be used even without an engine as the same can be manned manually using an oar. Neither can be classified as Yacht as the same is not a luxury vessel. They are plain rubber unit made of PVC materials designed to transport limited number of persons or objects during emergency or calamities at a short distance. 3. Finally, the said rubber boats do NOT fall under the category described under the phrase "other vessels intended for pleasure or sports" , on the ground that these boats are not vessel per se . Neither can be said to be intended for pleasure or sports since the recipient of these items are the Local Government Units and the National Red Cross which will in turn distribute the same to their respective constituents or affected areas of the recent typhoons. The ultimate beneficiaries are the people, hence, those items are for public use. In reply thereto, please be informed as follows: Relevant provision of the Tax Code of 1997, as amended, is Section 150 which provides as follows: "Section 150. Non-Essential Goods. There shall be levied, assessed and collected a tax equivalent to 20% based on the wholesale price or the value of importation used by the Bureau of Custom in determining tariff and customs duties, net of excise tax and value-added tax, of the following goods: cDHAaT (a) All goods commonly or commercially known as jewelry, whether real or imitation, pearls, precious and semi stones and imitations thereof: . . . . (b) Perfumes and toilet waters; (c) Yachts and other vessels intended for pleasure or sports . " [Emphasis supplied] In BIR Ruling No. 001-04 dated January 12, 2004, this Office defined the term "vessel" to extend to everything floating in and on the water, built in the form of a vessel, and used for navigation, regardless of form, rig, or motive power. Seemingly, under the said broad definition of the term "vessel", inflatable rescue rubber boats may be classified as a vessel. However, for purposes of the imposition of excise tax under Section 150 of the Tax Code of 1997, as amended, it is specified therein that the "vessel" to be subject of the 20% excise tax the same is intended for pleasure or sports. In the instant case, the buyers or recipients of the inflatable rescue rubber boats imported from China are the LGUs and organizations like the National Red Cross, involved in rescue operations during times of calamities and disasters. Thus, apparent therein that the purpose of the importation or supply of such inflatable rescue rubber boats by JOAVI to said organizations is for their rescue operations and definitely, not for pleasure or sports. Such being the case, this Office hereby rules that the importation of inflatable rescue rubber boats by JOAVI to be delivered to the LGUs, National Government Agencies/Entities and other organizations, like the National Red Cross, to be used for purposes among their mandates, i.e. , rescue operations in times of calamities and disasters, is not subject to the 20% excise tax imposed under Section 150 (c) of the Tax Code of 1997, as amended. 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, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service