Correct Internal Revenue Tax Applicable to Manufacturer of Lubricating Oil

April 20, 1992 BIR RULING NO. 132-92 145 (a) (1) 000-00 132-92 Bensan Industries, Inc. 353 EDSA, Caloocan City Metro Manila Attention: Mr . Benjamin S . Santos Gentlemen : This refers to your letter dated September 19, 1991, in effect, requesting for a ruling of the correct internal revenue tax applicable to your products (lubricating oil, e.g., motor oil, fuel oil, among others) which are produced essentially from the blending of used/waste oil, unused/virgin oil and chemical additives. prcd It is represented that you are a corporation duly registered with the Board of Investments (BOI) as a preferred pioneer enterprise for the production and manufacture of re-refined oil; that to produce your product, you purchase either locally or from other countries used oil (e.g., used engine oil, industrial oil and other similar products) and virgin/unused oil; that your production process involves (1) decantation (pouring the liquid from one container to another without disturbing the sediments) (2) distillation (letting the mixture undergo vaporization and condensation in the distilling column); (3) sedimentation (depositing the sediments) and (4) filtration (letting the mixture pass through a filtering device for purification. It is further alleged that your business involves purchasing used lubricating oil and re-refining and/or extracting the same back to basestock/base oil again; that the excise tax on the virgin lubricating oil; had already been paid at source before it became a used lubricating oil; that if at all any additives or base oil are added or blended therein to produce the marketable lubricating oil from the re-refined bases stock/base oil, the specific/excise tax of the said additives or base oil had likewise been paid. It is projected that by not subjecting to excise tax the used lubricating oil portion of the recycled lubricating oil, the effort of collecting used oil would be maximized. Moreover, recycling will prevent pollution of the environment save dollars in the payment of imported virgin lubricating oil and create more jobs to local labor. In reply, please be informed that based on the foregoing facts, you are a manufacturer of lubricating oil, e.g., motor oil, fuel oil, among others. Accordingly, pursuant to Section 145 of the Tax Code reading: "Sec. 145. Manufactured Oils and Other Fuels. There shall be collected on refined and manufactured mineral oils and motor fuels the following excise taxes which shall attach to the goods hereunder enumerated as soon as they are in existence as such: "(a) For products subject to specific tax only: (1) Lubricating oils and grease including but not limited to basestock for lube oils and greases, high vacuum distillates, aromatic extracts and other similar preparations, and additives for lubricating oils and greases whether such additives are petroleum based or not, per liter of volume capacity, four pesos and fifty centavos (P4.50); Provided , however , that the excise taxes paid on the purchased feedstock (bunker) used in the manufacture of excisable articles and forming part thereof shall be credited against the excise tax due therefrom; Provided, further, That lubricating oils and grease produced from basestocks and additives on which the specific tax has already been paid, shall no longer be subject to specific tax : . . ." (Emphasis supplied) if your raw materials consist of basestocks (of virgin oil) where the specific tax had already been paid, your finished product is no longer subject to another round of specific tax. If your raw materials, however, consist of local and/or imported used oil where no specific tax has been paid immediately before the re-refining process, the volume of re-refined oil produced out of the used oil shall be subject to a specific tax of P4.50 per liter pursuant to Section 145 of the Tax Code. In both cases, the entire volume of your finished product (re-refined oil) shall be subject to the 10% VAT under Section 100(a) of the Tax Code. cdta Very truly yours, JOSE U. ONG Commissioner of Internal Revenue