Taxability of Cost of Materials Purchased from Tax-Exempt Textile Manufacturers

January 3, 1967 BIR RULING NO. 001-67 The President Philippine Chamber of Industries P.O. Box 3873 M a n i l a S i r : This refers to your letter dated November 8, 1966 written in behalf of your members, who are in the garment and embroidery industry, requesting information as to whether or not the cost of raw materials purchased from textile manufacturers enjoying tax exemption under Republic Act No. 4086, can be deducted from the gross sales of garment manufacturers for purposes of the 7% tax imposed in Section 186 of the Tax Code. In reply, I have the honor to inform you that pursuant to Section 186-A of the Tax Code, whenever a tax-free product is utilized in the manufacture or production of any article, in the determination of value of such finished article, the value of such tax-free product shall be deducted. Accordingly, the cost of materials purchased from textile manufacturers enjoying the privilege of tax exemption under Republic Act No. 4086, be it total or partial exemption, and used in the manufacture of garments, is deductible from the gross selling price of such manufactured articles, the sales tax thereon to be computed on the resulting deference. Very truly yours, (SGD.) MISAEL P. VERA Commissioner of Internal Revenue This is to certify that the above ruling was signed by the Commissioner of Internal Revenue on January 3, 1967. (SGD.) PRISCILLA R. GONZALES Asst . Revenue Operations Head (Legal)