Sale of Imported Tax Paid Wines and Liquors

January 19, 1988 BIR RULING NO. 004-88 157 (aa) 000-00 004-88 Gentlemen : This refers to your letter dated October 29, 1987 stating that you are the sole importer and distributor in the Philippines of certain brands of foreign wines and liquors, e.g. Johnnie Walker, E & J Gallo Wines, Martell, Jim Beam and other European Wines; and you represented that on such importations, you have paid the prescribed rate of specific tax. Since duty-free shops are supposed to sell duty-free goods, you wanted to know whether you can likewise sell imported tax paid wines and liquors to them without adding the cost of specific tax but thereafter be allowed to claim tax credit or refund of the specific tax component on that sale. cdt In reply, please be informed that the operation of the duty-free shops which obviously sell duty-free goods is provided under Executive Order No. 46 dated September 4, 1986 in relation to P.D. No. 189, as amended by P.D. 259, which empowered the Ministry (now Department) of Tourism to establish duty-free shops and authorizing it to contract to private parties the actual operation thereof. Pertinent portion of said Executive Order No. 46 states: "Sec. 1. . . . Under this system, the Philippine Tourism Authority shall have the exclusive authority to operate stores and shops that would sell, among others, tax and duty-free merchandise, goods and articles, in international airports and sea ports throughout the country in accordance with the rules and regulations issued by the Ministry of Tourism. . . . "Sec. 2. . . . The stores and shops are effective showcases of Philippine culture, craftsmanship and industry, and that the system is an efficient and effective vehicle for the generation of foreign exchange and revenue for the government. It is understood that the merchandise in the shops and stores shall be sold only to departing passengers for their consumption abroad. Provided, however , that subject to such limitations, rules and regulations as may be prescribed by the Ministry of Finance, the shops herein authorized may sell merchandise to passengers coming into the Philippines from abroad." It appears from the foregoing provision that the privilege of the duty-free shops to sell tax and duty-free articles arise from the fact that such activity is within the purview of export sales as defined in Section 157(aa) of the Tax Code stating: "(aa) "Export sales" shall mean the Philippine port F.O.B. value determined from invoices, bills of lading, inward letters of credit, lending certificates, and other commercial documents, of export products exported directly by a registered export producer or registered export trader, or the net selling price of export products sold by a registered export producer to another export producer or registered export trader who subsequently exports the same, or the net selling price of export products in acceptable foreign currencies sold by a registered producer or registered export trader to foreign tourists and foreign travelers. . . ." (emphasis supplied) Gleaned from the significant portions of the aforestated provisions, viz: "the shops are effective showcases of Philippine culture, craftsmanship and industry" (Sec. 2, E.O. 46); "export sales shall mean the Philippine port F.O.B. value"; and "export products in acceptable foreign currencies sold by a registered producer or registered export trader to foreign tourists and foreign travelers" the obvious implication is that only locally-produced goods can be sold tax-free by the duty-free shops. Moreover, no perceivable economic benefits, i.e., additional foreign exchange earnings can possibly result in a situation where imported goods are sold tax-free because then the outflow of foreign currency to pay for such imports would just be equal to the inflow resulting from the sale thereof; hence, it is believed that your sale of tax paid imported wines and liquors to the duty-free shops is not exempt from specific tax because duty-free shops do not enjoy the tax exemption on their sale of imported wines and liquors. Accordingly, your query is answered in the negative for lack of legal basis. Very truly yours, (SGD.) EUFRACIO D. SANTOS Deputy Commissioner