Treatment of Sales Discounts for Sales Tax Purposes

July 28, 1980 BIR RULING NO. 111-80 Delsa Industrial Corporation P. Tuason Blvd., cor. 5th Ave. Cubao, Quezon City Attention: Mr . Ruben B . Nucum Finance Manager Gentlemen : This refers to your letters dated June 29 and August 16, 1978 requesting clarification on the treatment of sales discounts for sales tax purposes under P.D. No. 1358. Specifically, you brought this matter because of BIR Ruling No. 66-0010 dated March 6, 1966; and the tax credit allowed to purchaser will be affected once discount on the basis of a contract is given after a sales invoice is issued. In reply, please be informed that in BIR Ruling No. 66-0010, it was held that: "1. Sales discounts are deductible from the gross selling price of a manufacturer for purposes of sales tax, provided that they are determinable and definitely agreed upon at the time of sale and not in the nature of rebates or partial remissions of indebtedness. (BIR Ruling No. 105-02, Sept. 4, 1952; BIR Quarterly Bulletin, Vol. 1, No. 2). If the discounts are determined and given after the consummation of the sales, they are not deductible from the gross selling price of the manufacturer in computing his monthly sales tax. (BIR Ruling 105-02, May 27, 1954; BIR Quarterly Bulletin, Vol. III, No. 2) "2. Purchase discounts allowed by a supplier and/or seller of merchandise upon payment of such liabilities are not deductible from the gross purchases for sales tax purposes for the reason that such discounts were not determined at the time of sale." (BIR Ruling No. 97, S. 1960) The foregoing rules on sales discounts are still applicable under P.D. No. 1358. Thus, Section 5(b) of Revenue Regulations No. 8-78 implementing P.D. No. 1358, provides as follows: "In computing the base of the tax, discounts may be allowed as a deduction from the gross selling price provided said discounts are given at the time of the sale and are expressly indicated in the sales invoice." Under the regulations, only bonafide discounts which are given to purchasers as a consideration in the sales contract and which are ascertainable and definitely agreed upon by the vendor and the vendee at the time of sale deductible from the gross selling price for purposes of the sales tax. Such discounts must be expressly indicated in the invoice. Thus, credit given to customers by way of credit memo or note to cover prompt payment discount, volume discount and/or other special or confidential discounts which although granted to the vendee at the time of sale but are not expressly indicated in the sales invoice are not deductible from gross sales in determining the sales tax due on the finished products. Likewise, credits for allowances to cover rollback in prices and other price adjustments are not deductible for sales tax purposes. Very truly yours, RUBEN B. ANCHETA Acting Commissioner