BIR Ruling No. 213-83

November 2, 1983 BIR RULING NO. 213-83 Gentlemen : This refers to your letter in behalf of your client, Steniel Manufacturing Corporation (SMC) dated March 18, 1983 requesting a ruling on whether it can claim tax credit equivalent to the sales tax deemed paid on the raw materials which the company uses in the manufacture of its products. It is represented that SMC is engaged in the manufacture of corrugated carton boxes which are sold locally and abroad: that the company is registered with the Board of Investments as an export producer under the Republic Act No. 6135; that in the manufacture of corrugated boxes, SMC uses kraft containerboard as raw materials which it purchases from Paper Industries Corporation of the Philippines (PICOP); that PICOP is likewise registered with the BOI as a preferred pioneer industry under R.A. No. 5136; that the tax otherwise due on the raw material purchased from PICOP is indicated as a separate item in the sales invoices issued to SMC; that as a BOI-registered enterprise, SMC enjoys tax incentives, such as reduced income tax, tax-free importation of capital equipment, exemption from export tax, impost and fees, and tax credit equivalent to the sales tax due on the raw materials used in the manufacture of its products; that on the other hand, PICOP, SMC's supplier of raw materials, being a registered pioneer enterprise is exempt from all taxes under the Tax Code for the first 5 years of its operation; that considering that PICOP's sale of Kraft containerboard to SMC is exempt from sales tax, SMC in effect is deemed to have paid the sales tax thereon which can be credited against its sales tax liability on domestic sales of corrugated boxes and other tax liabilities to the national government. cdta In reply, please be informed that since the kraft containerboard, a tax exempt product of PICOP, a BOI registered enterprise, was used in the manufacture of your corrugated carton boxes, the sales tax deemed paid on said kraft containerboard may be credited against the sales tax due on your finished product sold locally, in accordance with Section 200 of the Tax Code as amended by Executive Order No. 872 which read as follows: "Sec. 200 Tax on tax-exempt products of pioneer enterprise registered with the Board of Investments deemed paid . Whenever a tax-exempt product of pioneer enterprise registered with the Board of Investments is used in the manufacture or production of any article sold domestically, the sale or specific taxes otherwise due on such tax-exempt product shall be credited against the sales tax due on the manufactured article." The tax deemed paid on the tax-exempt raw material cannot be credited against other tax liabilities of your client. Section 302 of the Tax Code does not apply because the raw materials utilized in this case were tax-exempt. cdt Very truly yours, (SGD.) RUBEN B. ANCHETA Acting Commissioner Bureau of Internal Revenue