BIR Ruling No. 160-84

September 25, 1984 BIR RULING NO. 160-84 199-a-000-00-160-84 S i r : This refers to your letter dated September 12, 1984 requesting for and in behalf of your client, Bataan Pulp and Paper Mills, Inc., a ruling as to the correct computation of sales tax due. You stated that your client is a registered pioneer enterprise enjoying the diminishing tax exemption privilege under Section 8 of Republic Act No. 5186, now Section 46 of P.D. No. 1789, otherwise known as the Omnibus Investments Code; that assuming that your client is enjoying exemption from sales tax to the extent of 20%, and that it has a sales tax due of P100.00 and a tax credit of P30.00, you would like to know which of the following computation is applicable. "Computation No. 1: Gross Sales Tax Due P100.00 Tax Credit 30.00 Net Sales Tax due P70.00 ======== 20% exemption x P100.00 = P20.00 ======== P70.00 20.00 Exemption Sales tax due after exemption P50.00 ======== Computation No. 2: Gross Sales Tax due P100.00 Tax Credit 30.00 Net Sales Tax due P70.00 ======== 20% exemption x P70.00 = P14.00 ======== P70.00 14.00 Exemption Sales Tax due after exemption P56.00" that the first computation is in consonance with the underlying reason for the adoption of the tax credit method for purposes of computing sales tax liability; and that therefor, the 20% tax exemption should be based on the gross sales tax due before deducting the tax credit. In reply, I have the honor to inform you that your opinion that the 20% tax exemption should first be deducted from the gross sales tax due before deducting the tax credit is correct. Accordingly, the amount of P50.00 which is arrived at under Computation No. 1, is the proper amount due from your client as net sales tax. Said net sales tax should however be computed as follows: Gross Sales tax due P100.00 20% exemption 20.00 Net Sales Tax Due P80.00 Less: Tax Credit 30.00 Sales Tax Due P50.00 ======== In other words, to arrive at the correct sales tax liability of your client under the illustration, the tax credit should be applied against the net sales tax due after deducting the 20% exemption. iatdc Very truly yours, (SGD.) RUBEN B. ANCHETA Acting Commissioner