Exemption from Ad Valorem Tax

September 18, 1990 BIR RULING NO. 183-90 R.A. 6810 000-00 183-90 S i r : This refers to your letter dated May 4, 1990 to Undersecretary Victor Macalincag bearing on the request of Mr. Deo C. Reloj, Jr., President of Amptron Chemicals Mfg. (Amptron) for a ruling to the effect that ad valorem tax and the so-called Oil Price Stabilization Fund (OPSF) contributions on petroleum thinners are covered by tax exemption under Kalakalan 20. cdta It is represented that Amptron used petroleum thinners as raw materials in the production of premium quality solvents for the paint, ink, dry cleaning and pesticides industries; that besides the local market, companies in HongKong are also interested in buying from said company but that it cannot supply them because of ad valorem tax and the OPSF contribution added to the costs; that per report in the Bi-Monthly Price Build-Up Review of the Energy Regulatory Board, petroleum thinners are subject to P1.1117 and ad valorem tax and P4.1656 OPSF contributions, representing 60% of total costs. In reply, please be informed that pursuant to Section 17 of Administrative Order No. 2, s. 1990, issued by the Secretary of Trade & 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) value-added tax; d) income tax; e) 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 taxes, 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." Amptron is only exempt from taxes for which it is directly liable. When the tax is merely added to the cost of purchases of petroleum thinners, it is no longer a tax but merely an additional cost which Amptron has to pay to obtain the same. (Philippine Acetylene V. Com., 20 SCRA 1056) In other words, Amptron is exempt from ad valorem tax only on its sale of manufactured products, but not on its purchases of raw materials. On the other hand, OPSF contributions being, in the nature of a special levy, is the direct liability of the seller not the buyer. In view thereof, this Office is of the opinion and so holds that ad valorem tax and OPSF contribution added to the cost of Amptron's purchases of petroleum thinners which it manufactures/processes into another product are not covered by the tax exemption under Kalakalan 20 (R.A. 6810). cdtech Very truly yours, (SGD.) EUFRACIO D. SANTOS Deputy Commissioner