Deductibility of the Cost of Leather Previously Taxed from the Gross Selling Price of the Articles Manufactured

March 18, 1958 BIR RULING NO. 184-58 Mr. Irineo A. Obedencio Certified Public Accountant 982 Ilaya, Manila S i r : In reply to your letter dated March 7, 1958, I have the honor to inform you that, as a general rule, the cost of raw materials is, for purposes of the sales tax, deductible from the gross selling price of the articles manufactured therefrom if they had been previously taxed under the same section of the Tax Code under which the manufactured articles are subject. This is precisely the purview of the proviso contained in the first paragraph of Section 185 of the Tax Code as well as in Sections 184 and 186 thereof. Accordingly, your problem may be resolved, as follows: Men's and ladies' belts are subject to 7% sales tax. Therefore, the cost of leather used in the manufacture thereof is deductible because leather is subject also to 7% sales tax when imported or sold by the local producers thereof. But before such deduction may be allowed, it must be duly established that the leather had been previously taxed. Wallets and billfolds made of leather are subject to 30% sales tax. Therefore, in line with the rule, the cost of leather used in the manufacture thereof is not deductible, for purposes of the sales tax, from the gross selling price thereof. Very truly yours, (SGD.) JOSE ARAAS Commissioner of Internal Revenue