BIR Ruling No. 171-99

October 27, 1999 BIR RULING NO. 171-99 International Pharmaceuticals, Inc. Juan Luna St. Mabolo, Cebu City Attention: Mr. Pio Castillo President Gentlemen : This refers to your letter dated April 11, 1999 with attached position paper submitting your justifications for the amendment of the laws on excise tax and why no excise tax should be imposed on the importation by your company of "Efficascent Premix". It is represented that International Pharmaceutical, Inc. (IPI) is a Cebu-based Filipino-owned corporation engaged in the manufacture, distribution and export of various pharmaceutical and household products and is employing about 2,000 workers; that it is regularly engaged in the importation of "Efficascent Premix" which is a raw material to its medicinal preparation called Efficascent Oil; that in January 1999, its importation of the said premix was subjected to excise tax for the first time; that said importation was imposed excise tax at the rate of P300 or P4.50/liter per shipment which is the tax rate imposed on lubricating oils and greases; that IPI protested the said imposition but pending resolution thereof, it posted a cash bond for the tentative release of the shipments of the said premixes; that the importation of "Efficascent Premix" is not subject to excise tax since it is mostly used as base for a medicinal preparation intended for human skin; that since Chapters III and V of Title VI of the Tax Code of 1997 covers only alcohol and petroleum products, the implication is that the products covered therein are for alcohol or petroleum related uses or purposes only. Laboratory analyses on Efficascent Premix disclosed that it is a petroleum based-product, as per the following summary: 1) SGS result showed 86% oil (Laboratory Test Report No. 53346 dated February 16, 1999); 2) IPI laboratory describes Efficascent Oil Premix as "blue, oily liquid with characteristic mineral oil odor"; 3) The supplier of the material, Seojin Chemical Co. Ltd., describes Efficascent Premix as a raw medical material containing 100% liquid saturated hydrocarbon, that is, paraffin oil/white mineral oil or liquid form of petrolatum. 4) The Chief of the BIR Laboratory Unit concurred with the description and findings of Seojin Chemical Co. Ltd., that "Efficascent Premix" is a raw medical material containing 100% liquid saturated hydrocarbon, that is paraffin oil/liquid petrolatum or white mineral oil . The sole issue in this case is whether or not "Efficascent Premix" is subject to excise tax under Section 148 of the Tax Code of 1997. In reply, please be informed that it is the consistent stand of this Office that the importation of 'pharmaceutical oil'. otherwise known as white pharma oil, liquid paraffin, white mineral oil, pharmaceutic acid and cathartic, is subject to excise tax. (BIR Ruling No. 194-93 dated May 5, 1993). Section 148 of the Tax Code of 1997 (then Section 145, NIRC) imposes excise tax upon waxes and petrolatum. Petrolatum is a semi-solid or liquid mixture of hydrocarbons derived by distillation of paraffin base petroleum fractions (Hawley's Condensed Chemical Dictionary). The liquid form (white mineral oil) is used as laxative, textile lubricant and dispersing agent. As established by laboratory analyses, "Efficascent Premix" falls under the definition of petrolatum, the former being a mineral oil and hence a liquid form of petrolatum. As confirmed by no less than the Supreme Court, "Paraffin Wax/Petrolatum" is subject to specific (excise) tax irrespective of kind, nature and purpose. (Mega General Merchandising Corporation vs. Commissioner of Internal Revenue, G.R. No. L-69136, September 30, 1998. It is your further contention that from the time you started to import Efficascent Premix, the taxes that have been paid thereon have been the 3% customs duty and 10% value-added tax (VAT). The reason is readily apparent. The product may have always been described in the import documents in its commercial or proprietary name or as a medical preparation but not as a mineral oil. In fact, during your last two importations, the product was declared under HS Code 3003.9000 which is described under the Tariff and Customs Code as "Medicaments" under a 3% duty. Inasmuch as this particular tariff heading has five (5) different Tariff Specifications with different excise tax rates, the Bureau of Customs decided to subject the product to laboratory analysis in order to determine its exact chemical composition. At the same time, it referred the matter to this Office for the proper determination of the correct excise tax rate (Letter dated January 22, 1999 of Ms. Wivina B. Pumatong, Acting COO V, District Port of Cebu, Bureau of Customs). That inquiry led to the subsequent determination of the proper classification of "Efficascent Premix" for excise tax purposes, as established by this Ruling. Assuming that the extent of the mineral oil content is only at 86% based on the SGS finding, that by itself would put Efficascent Premix as a petroleum based product. The taxability of petroleum product, effective August 16, 1996, is based on the percentage of petroleum content. If the resultant product contains not less than fifty percent (50%) by weight of such petroleum product, the same is considered a petroleum product, hence subject to excise tax. (Section 4(g) of Republic Act No. 8180 entitled "An Act Deregulating the Downstream Oil Industry and for Other Purposes" as implemented by Revenue Regulations No. 8-96). Accordingly, the importation of the said premix, effective August 16, 1996, is subject to excise tax of P3.50 per kilogram pursuant to Section 148(c) of the Tax Code of 1997 (then Section 145, NIRC) and to the 10% value-added tax under Section 107 of the same Code. Finally, this Office is merely charged with the enforcement and implementation of these provisions of the law and is in no position to effect any amendment thereof, nor is it authorized to reduce the prescribed excise tax rates, these matters being under the exclusive domain of Congress. llcd Very truly yours, (SGD.) BEETHOVEN L. RUALO Commissioner of Internal Revenue