Basis of the 20% Tax Imposed by Sec. 150 of the Tax Code for Non-Essential Goods Which are Locally Made

April 20, 1992 BIR RULING NO. 127-92 101; 150; 151 (3) 000-00 127-92 PECABAR Management Services 4th Floor, Vernida IV Bldg. Alfaro Street, Salcedo Village Makati, Metro Manila Gentlemen : In reply to your letters dated November 15, 1991 and December 7, 1991, please be informed as follows: Re : query (1) : Yes. With respect to non-essential goods which are locally made, the basis of the 20% tax imposed by Section 150 of the Tax Code is the wholesale price. Re : query (2) : The phrase "Net of excise and value-added tax" simply means that in the computation of the 20% tax imposed by Section 150 of the Tax Code, the excise and value-added tax otherwise due thereon should be excluded. Illustrative examples: A. Imported Jewelry For Excise Tax FMV of jewelry $1,646.34 Insurance & freight 560.00 Dutiable charges 29.10 Dutiable value 2,235.44 Conversion rate 28.00 Dutiable value (in pesos) or Excise tax base P62,592.32 Rate of Tax 20% Excise tax due P12,518.46 For VAT Dutiable value P62,592.32 Customs duty 15,648.08 Bank charges 78.24 Brokerage fee 2,067.19 Documentary Stamp 31.50 Processing fee 250.00 P93,185.79 Rate of tax 10% VAT due P9,318.58 B. Locally manufactured jewelry Wholesale price P20,000.00 Excise tax rate 20% Excise tax due P4,000.00 Retail price P24,000.00 VAT rate 10% VAT due P2,400.00 Re : query (3) and (4) : The term "precious metals" shall include platinum, gold, silver and metals of similar or greater value. (Section 150, Tax Code) Hence, plain iron sheet, aluminum sheet, stainless steel, brass, copper and babbitt cannot be considered precious metals since their value is not similar or greater than platinum, gold or silver. The gold or silver-electroplating of any one of them will neither produce a "precious metal." Re : query (5) : The importation of non-precious metals in its basic form, i.e., not designed or fashioned into jewelry, is taxable under Sections 151 (3) and 101, both of the Tax Code as amended by E.O. No. 273, i.e., 5% excise tax and 10% value-added tax. Re : query (6) : The gold or silver electroplating of a non-precious metal will produce an "imitation precious metal" and the basis of the 20% tax will be wholesale price thereof. Re : query (7) : The 5% excise tax and 10% value-added tax imposed by Sections 151(3) and 101 of the Tax Code are not deductible from the 20% tax due on "imitation precious metal." Re : query (8) : Yes. The electroplating company shall be liable to the 10% VAT under Section 102 of the Tax Code. However, the company owning the non-precious metals already fashioned into jewelry and subjected to electroplating shall be subject to both the 20% excise tax and 10% VAT, pursuant to Section 150 of the Tax Code. Re : query (9) : If the silver or gold alloys are supplied by the electroplater, the latter is subject to the 5% excise tax and 10% VAT under Sections 151 (3) and 102 of the Tax Code, unless he/it can show proof that the said taxes are previously paid. This is equally true if the company which owns the non-precious metal is the supplier of the silver or gold alloys for electroplating. Re : query (10) : No. Any excise or value-added tax paid on the importation and purchase of gold or silver alloys is not deductible from the excise and VAT taxes imposed by Section 150 of the Tax Code. Re : query (11) : Yes. The company described in your query is the manufacturer or producer of the imitation jewelry and not the electroplater who is merely a jobber. Re : query (12) : The electroplater who merely applies finishing process on the imitation jewelry is merely a jobber and not a manufacturer or producer of imitation jewelry. Re : query (13) : Neck or wrist chain made of plain brass or copper or babbitt is/are not included in the term "precious metals" or "imitation jewelry." However, if the same is subjected to gold or silver-electroplating, it falls under the term "imitation jewelry." Very truly yours, JOSE U. ONG Commissioner of Internal Revenue