Whether Finished Carpets and Rugs Are Subject to 10% Sales Tax

August 22, 1985 BIR RULING NO. 132-85 196-g 132-84 132-85 Gentlemen : This refers to your letters dated November 28 and December 5, 1984 requesting confirmation of your opinion that finished carpets and rugs are only subject to the 10% sales tax prescribed in Section 199(a) of the Tax Code, as amended. It is represented that Philippine Carpet Manufacturing Corporation is a corporation engaged in the manufacture of carpet and rugs using the following materials: woolen and synthetic yarns, chemicals and dyestuffs, canvass, mesh cloth and latex; that woolen and synthetic yarns, chemicals and dyestuffs are imported while the other articles are purchased locally. In reply, please be informed that your request cannot be granted for lack of legal basis. The term "carpet" means a heavy, woven fabric usually made of wool for covering floors and stairs; "rugs" are thick woven cloth used as covering. Moreover, textile means woven fabric or cloth. Such being the case, the manufactured carpets and rugs are considered "Textile" within the purview of Section 196(g) of the Tax Code, quoted as follows: "(g) Textiles wholly or in chief value of silk, wool, linen, nylon or other synthetic and/or chemical fabrics except those primarily intended for clothing, wool and silk hats, and fur and manufactures thereof;" and, therefore, subject to the 25% sales tax prescribed therein. However, to support your request, you cited the ruling of this Office of January 19, 1967 that carpets and rugs are not enumerated under Section 185(p) [now Section 196(g)] of the Tax Code; hence the locally manufactured rugs and carpets are considered ordinary article subject only to the 7% (now 10%) sales tax, pursuant to Section 186 (now Section 199) of the Tax Code. It is noted that said section 185(p) was amended by Republic Act No. 6110 effective September 1, 1969 in the sense that the articles enumerated therein which are locally manufactured shall be considered ordinary articles taxable only at 7% (now 10%). Thereafter, said provision was amended by P.D. No. 1358 effective April 21, 1978 which is now Section 196(g) above quoted. By virtue of said amendments, the above ruling of this Office of January 19, 1967 shall be considered as effective only up to April 21, 1978 . After said date, under P.D. No. 1358, the carpets and rugs locally manufactured by you are clearly taxable at 25% for being semi-essential items because the same are considered textiles, principally made of wool and synthetic yarns. Regarding your claim that carpets and rugs are not mentioned in Department Order No. 17-78, it is noted that this Order enumerates similar or analogous articles mentioned in Section 194, 196 and 197; hence considering that carpets and rugs are already mentioned in the law as falling within the coverage of textiles made of wool and synthetic yarns, there is no more necessity to include them in the Department Order. Very truly yours, (SGD.) RUBEN B. ANCHETA Acting Commissioner