Tax Credit Incentive of a BOI-Registered Firm

March 9, 1990 BIR RULING NO. 025-90 167 (e) 000-00 025-90 Gentlemen : This refers to your letters dated May 5, and October 24, 1989, in behalf of your client, Indo Phil. Textile Mills, Inc., requesting a ruling "that Section 5(c) of Revenue Regulations No. 2-86 does not apply to tax credit certificates issued by the BOI under existing investment incentive laws. In other words, the issue sought to be clarified is that the tax credit certificates issued by the BOI should not be reduced by the available tax credits against the sales tax due on local sales considering that our client has never applied for tax credit under the Tax Code but only under the BOI laws." cdtech Pertinent portions of Section 5(c) of Revenue Regulations No. 2-86, as amended by Section 3 of Revenue Regulations No. 5-86, are quoted as follows: "(c) Tax Credit . (1) On original sale of manufactured products. xxx xxx xxx "(e) The amount of the tax credit certificate issued to a manufacturer-exporter in accordance with paragraph (d) of Section 167(202) of the Tax Code." It is represented that your client is registered with the Board of Investments (BOI) under R.A. 5186 and P.D. 1789, as amended by B.P. 391, for the production of spun yarns which are sold both in the domestic and foreign markets; that 90% of your client's finished products are exported while the rest are being sold locally; that it is applying for tax credit under the BOI laws and not under the National Internal Revenue Code administered by this Office; and that its application for tax credit with BOI states that it has not and will not avail of tax credit under other scheme for exportation covered by the application. In reply, please be informed that as a BOI-registered firm, your client enjoys the tax credit incentive under Article 48 of P.D. 1789, as amended by B.P. 391, pertinent portion of which is quoted hereunder: "Art. 48. Incentives for Registered New or Expanding Export Producer . All registered export producer, whether pioneer or non-pioneer, shall be granted the following incentive to the extent engaged in new capacity or expansion of capacity in a preferred area of investment: xxx xxx xxx (i) Tax Credit for taxes and duties on raw materials . Every registered export producer shall enjoy a tax credit equivalent to the sales, compensating and specific taxes and duties paid on the supplies, raw materials and semi-manufactured products used in the manufacture, processing, or production of its export products and forming part thereof, exported directly by the recipient export producer or sold to an export trader who subsequently exports said products." (Emphasis supplied) The tax credit certificates shall be used by your client to pay taxes, duties, charges and fees due to the national government. (Art. 22, Ibid ) Accordingly, and considering that your application for tax credit filed with the BOI for taxes paid on raw materials states that you will not avail of any tax credit under other scheme, e.g., under the National Internal Revenue Code, this Office believes and so holds that the above quoted provisions of Section 5(c) of Revenue Regulations No. 2-86, as amended by Revenue Regulations No. 5-86, will not apply. It may be stated that said regulations, apply only to tax credits issued by this Office and not the tax credit certificates issued by the BOI. This is so because said regulations implement the aforesaid provisions of Section 167(d) of the Tax Code which exempt from the sales tax finished articles exported abroad; hence, a tax credit is allowed in favor of the manufacturer-exporter on the raw materials used by him in the manufacture of the exported finished products, pursuant to then Section 166(b) of the Tax Code. Finally, since your client's application for tax credit is under the BOI law, one of the conditions of which is non-availment of tax credit under the National Internal Revenue Code, the possibility of double claim for tax incentives will not occur. aisadc Very truly yours, (SGD.) JOSE U. ONG Commissioner