Computation of the Percentage Tax

May 15, 1980 BIR RULING NO. 062-80 Mr. Nicolas Peza 30 Malasimbo, Bo. Masambong Del Monte Avenue, Quezon City S i r : This refers to your letter dated May 18, 1978 and August 6, 1979 requesting clarification as to the correct computation of the percentage tax due under the proviso of Section 16 of Republic Act No. 3470, as amended by Republic Act No. 5326 and Presidential Decree No. 817 which reads: " Provided, furthermore , That no exemptions from the percentage taxes on sales shall be enjoyed for all sales in excess of four hundred thousand pesos each year." In effect, you would like to request confirmation as to the correctness of the following computation based on your Business Tax Return for the year 1975: "Gross Sales P618,000.00 Less Cost of materials used: Raw materials inventory beg. P13,000.00 Add Purchases 490,000.00 Total materials handled P503,000.00 Less Raw materials inventory end 15,000.00 488,000.00 Net taxable sales P130,000.00 Less exemption per PD 817 400,000.00 Amount subject to percentage tax EXEMPTED" It is represented that you are a manufacturer of ladies' bags, shopping and school bags duly registered with the NACIDA under Certificate of Registration No. 26456 dated February 11, 1974. In reply, I have the honor to inform you that pursuant to Section 16 of RA 3470, as amended by RA 5326 and PD 817, no exemptions from percentage taxes on sales shall be enjoyed for all sales in excess of P400,000.00 each year. However, since PD 817 subjecting to percentage tax sales in excess of P400,000.00 only took effect on October 22, 1975, and that prior to the effectivity of the said Decree, what are subject to percentage tax are sales in excess of P200,000.00 (RA 5326), the excesses of sales shall be prorated by computing the proportionate exemption for the period from January 1 to October 21, 1975 under RA 3470, as amended by RA 5326 and the proportionate exemption for the period from October 22 to December 31, 1975 under PD 817. The aggregate of the proportionate exemptions shall be subtracted from the total sales to arrive at the non-exempt sales. Deductible raw materials shall be determined by computing the raw materials used in the non-exempt sales and subtracting said raw materials from the non-exempt sales to arrive at the amount subject to percentage tax, and compute the deficiency tax, surcharge, interest and penalties due thereon. Thus, on the basis of your gross sales of P618,000.00 for the year 1975, the computation should be, to wit: cdtai Proportionate exemption under RA 5326 P161,643.82 Proportionate exemption under PD 817 76,712.32 Total allowable exemptions in 1975 P238,356.14 Total sales 1975 P618,000.00 Less: Allowable exemption 238,356.14 Non-exempt sales P379,643.86 Rate of raw materials used in non-exempt sales = P379,643.86 P618,000.00 = 0.6143 = 61.43% Raw materials used in the manufacture of non- exempt sales = P488,000.00 x 61.43% = P299,778.40 COMPUTATION OF DEFICIENCY TAX, SURCHARGE, INTEREST AND PENALTY DUE AND COLLECTIBLE Non-exempt sales P379,643.86 Less: Deductible raw materials 299,778.40 Taxable sales P79,865.46 Multiplied by rate of tax .07 Sec. 186 NIRC Percentage tax due thereon P5,590.58 Add: 25% surcharge 1,397.64 Sec. 183 NIRC 14% Interest from Jan. 21, 1976 to July 20, 1979 P3,424.22 Compromise penalty for late payment P50.00 Gen. Cir. #239 Total Deficiency Percentage Tax, Surcharge, Interest and Penalty Due and Collectible P10,462.44 Consequently, you are liable in the amount of P10,462.44 as deficiency percentage tax, surcharge, interest and penalty for the year 1975. cdt Please be guided accordingly. Very truly yours, RUBEN B. ANCHETA Acting Commissioner