Proper Application of R.A. No. 4086 to Export Sales During the Period of Partial Exemption

June 29, 1966 BIR RULING NO. 027-66 Ramie Textiles, Inc. P. O. Box 185, Manila Gentlemen : This refers to your letter dated October 29, 1965 requesting information as to the proper application of Republic Act No. 4086 during the period of partial exemption. cdta In answer thereto, I have the honor to inform you as follows: 1. During the period of partial exemption, export sales need not be reported for sales tax purposes, the same being exempt pursuant to section 188 (e) of the Tax Code. However, inasmuch as you are still subject to the 1% tax on gross sales during the period of partial exemption, your export sales shall form part of your gross sales. 2. Your request to deduct the entire cost of raw materials requisitioned and issued to production during a given month from your gross sales for the month cannot be allowed as it would not bring about the correct computation of the tax. The law permits the deduction of only the unit cost of the raw materials that went into the articles sold. 3. The recovered cost of the empty containers is not deductible from the cost of the raw materials in computing the sales tax due on the manufactured articles. However, the proceeds from the sale of said empty containers are considered as purely miscellaneous income and should, therefore, be declared for income tax purposes. 4. The total landed cost plus the mark-up of the imported raw materials which have been previously taxed under the same section as the manufactured articles is deductible from the gross selling price of the manufactured articles. The 7% advance sales tax paid and other expenses incurred after the release of the raw materials from customs custody are not deductible from the gross selling price of the finished articles. 5. As a rule, the payment to the Bureau of Customs of the advance sales tax on imported articles based on the landed cost, plus the corresponding mark-up, is considered final. The actual landed value of imported articles is that determined by customs in final liquidation of the importation. A recomputation of the advance sales tax may be made should evidence of fraud in the importation appear. 6. Containers are considered raw materials and, therefore, the total cost thereof is deductible from the gross selling price of the manufactured articles provided that they have been previously subjected to the sales tax. The cost of supplies used in producing steam, not being raw materials used in the manufacture of textile, is not deductible. 7. The cost of the tax-paid raw materials purchased prior to the effectivity of Republic Act No. 4086 but still in the inventory as of December 31, 1966 which your company will use in its manufacture is deductible in full during the period of partial exemption. However, the cost of raw materials which were imported tax free but still in the inventory after 1966, when used during the period of partial exemption, is not deductible from the gross selling price for purposes of the sales tax. Raw materials purchased from agricultural cooperatives are also deductible. B. I. R. Ruling No. 63-092). cdtech Very truly yours, (SGD.) MISAEL P. VERA Commissioner of Internal Revenue This is to certify that the above ruling was duly signed by the Commissioner of Internal Revenue on June 29, 1966 . PRISCILLA R. GONZALES Asst. Revenue Operations Head (Legal)