Non-Tax Credit on Sales Tax Paid on the Raw Materials

February 10, 1987 BIR RULING NO. 036-87 166 (b) 000-00 036-87 Gentlemen : This refers to your letter dated March 5, 1985 which was referred to this Office on May 20, 1985 by the Ministry of Finance requesting that the sales tax paid on the raw materials used (logs) be credited against the export duties due on your exported sawn lumber. It appears that you are a BOI-registered enterprise; that you purchased logs from concessionaires out of which air-dried sawn lumber was produced and then exported; and that since you are not selling your finished product in the local market, you have no percentage tax liability against which you can credit the sales tax paid on the raw materials used in the manufacture of finished products for export. For this reason, you are requesting that the sales tax paid on the raw materials be credited against your export tax liability. It appears also that, according to the Board of Investments, the sawn lumber product is not registrable with the said Board. In reply, please be informed that under Section 166(b) of the Tax Code, as amended by Executive Order No. 36 which provides as follows: "Sec. 166. Tax Credit . "(b) Tax Credit on articles exported . Any excise, sales or advance sales tax paid under this Title or Title IV of this Code on domestically manufactured or imported raw materials used in the manufacture and forming part of the finished products subject to tax under Section 163(1), (2) and (4) hereof shall be allowed as a tax credit against any internal revenue tax liability directly due from the manufacturer exporting said products: Provided, That the amount of the tax on locally purchased raw material, part, accessory, or other article is indicated as a separate item in the sales invoice of the supplier from whom it was last purchased, . . ." you are entitled to tax credit with respect to the sales tax which you paid on locally purchased logs and used in the manufacture of sawn lumber which you exported, and that said tax credit may be applied against any internal revenue tax liability directly due from you. Such being the case, said tax credit cannot be applied against the export duties due on the exported sawn lumber since the latter is not an internal revenue tax. If may be stated that export duties are imposed under the Tariff and Customs Code (P.D. No. 1464) and is being collected by the Bureau of Customs. Moreover, since your lumber product is not registrable with the Board of Investments, the provision of the Investments Incentive Code (Arts. 22 and 48, P.D. No. 1789) which allows the issuance of tax credit on sales tax paid on raw materials to be used in the manufacture of export products and which tax credit can be used in payment of taxes due to the National Government cannot be applied in the instant case. In other words, the tax credit certificate shall be issued by this Office under the above-quoted provision of the Tax Code. In this connection, you are requested to submit to our Chief Investment Incentives Division all the supporting documents for processing of your claim for tax credit. Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner