BIR Ruling No. 044-62

February 13, 1962 BIR RULING NO. 044-62 The Philippine Manufacturing Company P. O. Box 302, Manila Gentlemen : Reference is made to your letter of the 12th ultimo, requesting authority to bill as a separate item in the invoice only the estimate of the actual sales tax due on your sales. Your request is as follows: aisadc "We would like to request your authority to allow us to indicate on our sales invoices our best estimates of the actual sales tax due on all our sales. "Our best estimates will be based on our actual sales taxes paid during the past six months and are base on our process cost accounting system. We shall use a single rate for each of our 19 brands. We shall have, therefore, 19 sales tax rates. These rates will be reviewed by us monthly to see to it that these rates will result in close to actual sales taxes. "We realized these rates will not result in actual sales tax for each sales invoice. We feel, however, that this is the only way we can comply with the requirement that the sales tax be itemized on the invoice. And we would like to comply with the requirement. "This request is made in view of the impossibility of our calculating the actual sales tax due at the time of actual sales tax for these reason: "1. Our products (lard, Margarine, soap, etc., which are taxes at 7%) use coconut oil which is taxes at 2%. We are allowed by Sec. 189 of the National Internal Revenue Code to deduct the value of the coconut oil content of our products from our sales of lard, margarine, etc. for calculating the 7% sales tax rate due to fluctuating copra prices. "a. Each of our products do not contain the same amount of coconut oil. We have about 69 brands and sizes of lard, margarine and soap, with varying amounts of coconut oil content. The number of brands and sizes is expected to increase due to planned expansions of the company. "2. The complicated nature of our manufacturing process requires the use of 366 different kinds of raw materials, both imported and local, which we are allowed to deduct from our sales to calculate the final 7% sales tax liability. The values of these deductible raw materials, like the value of coconut oil, vary from month to month. "A. We manufacture these products: Lard Cooking oil Margarine Refrigerated margarine Laundry soap Toilet soap Toothpaste Synthetic detergents Glycerine Hydrogenated palm oil "Each of these products involve a complicated process of manufacturing. To illustrate, the manufacture of toilet soap alone involves these manufacturing processes. "1) Copra is crushed through espellers and crude coconut oil is extracted. In the process, copra cake results as a by product. The oil is filtered and sent to a supply tank. "2) The crude coconut oil is then refined to separate the fatty acids from the good oil. The refined oil is then washed to remove impurities. "3) The washed coconut oil is then bleached to reduce the color so as to meet product requirements. "4) The bleached coconut oil is then deodorized to remove the bodies that form the bad odor in the oil. "5) Crude tallow, which is another basic raw materials, is first refined and then bleached. "6) The bleached tallow and the deodorized coconut oil are then mixed in a huge kettle to make soap. "7) The mixed oils are first saponified (separation of the real soaps from the lye). This lye is sent to our Glycerine House for processing and recovery of glycerine. "8) The real soap is washed to further remove the lye for glycerine recovery and to prepare it for the actual soap process. "9) The washed soap is boiled into kettle soap and picled (removal of water). "10) The boiled kettle soap is tested for product requirement and sent to its next process. "11) The kettle soap undergoes the crutching process wherein the moisture is removed by the drying machine, its conversion from semi-solid to solid stage long ribbons and then into chips. "12) The chips are mixed with various chemicals and are formed into a long continuous tubular form and cut into sizes as required. This is then formed into a rectangular bar soap to ready it for packing. "13) The packing process uses various kinds of packaging materials to have it ready for marketing. "The above processes require the use of various materials both imported and locally purchased. The making of our Camay soaps alone requires the use of 32 kinds of materials. "b. The materials are allowed to be deducted only when the finished goods have been sold. Since our system of cost accounting is on a weighted average system, the costs of these materials are not known until after all the cost figures for a month are known. It is therefore impossible to know the values of the deductible raw materials at the time of the actual sale. "We propose to calculate our actual sales tax liability each month and compare this against the total of what we have indicated on the invoices. "We shall appreciate your early approval of our request to use our best estimates for sales tax to be shown on our invoices, subject to adjustment after the calculation of the actual sales tax liability." In answer thereto, I have the honor to inform you that, based on the aforequoted circumstances, and considering your sincere attempt to bill the correct amount of the tax, your request is hereby granted. It is of course understood that the amount of the tax payable by you at the end of the month shall be the total of the taxes actually due on your sales and not the total of the taxes billed in the invoices. cdll (SGD.) MELECIO R. DOMINGO Commissioner of Internal Revenue