Procedure for Availment of Tax Credit on Raw Materials

July 4, 1990 BIR RULING NO. 128-90 R.A. 6810 000-00 128-90 Gentlemen : This refers to your letter dated May 15, 1990 stating that you are a duly registered countryside and Barangay Business Enterprise (CBBE) under Republic Act No. 6810 (Kalakalan 20); that you manufacture paraffin wax, deodorized dry cleaning fluid, and deodorized insecticide base using slack wax, petroleum thinner and kerosene as raw materials respectively; and that on slack wax, you paid specific tax P3.50 per kgm.) and 10% VAT; that on petroleum thinner and kerosene you paid 24% ad valorem tax. cdta You now request for a ruling on the correct procedure for availment of tax credit on raw materials due you as CBBE under Kalakalan 20. In reply, please be informed that pursuant to Section 17 of Department Administrative Order No. 2, S. 1990, issued by the Secretary of Trade and Industry, prescribing the Guidelines Implementing R.A. 6810 otherwise known as "Kalakalan 20", reading: "Sec. 17. Exemption from Taxes and Fees . Registered CBBEs shall be exempt from all taxes and fees, whether national or local, for a period of five (5) years from date of registration, including but not limited to: a) building permit fees; b) specific tax; c) income tax; d) other taxes or fees that are, or may be, imposed by the national or local government units. "The foregoing exemption, however, shall not include exemption from real property and capital gains tax, import duties, value-added tax on imported articles and other taxes on imported articles. As interpreted by the Department of Finance, the exemptions herein shall likewise not apply to taxes on income not arising from CBBE productive activity, such as interest, royalties, prizes and winnings and dividends." you are only exempt from taxes for which you are directly liable, hence you are not entitled to claim any tax credit for excise tax (specific or ad valorem ) or VAT added to the cost of your raw material purchases. Such taxes when added to the cost of your raw materials, purchases are no longer taxes directly payable by you but mere additional cost which you have to pay in order to obtain the goods. (Philippine Acetylene v. Com., 20 SCRA 1056) In other words, you are exempt from VAT and excise tax only on your sale of manufactured products, viz: paraffin wax, deodorized dry cleaning fluid and deodorized insecticide base. aisadc Very truly yours, (SGD.) JOSE U. ONG Commissioner