Rate of Sales Tax on Imported and Local Raw Materials to Be Used in the Manufacture of Laundry Soaps, Detergents, etc.

October 15, 1986 BIR RULING NO. 220-86 163 000-00 220-86 Gentlemen : This refers to your letter dated April 21, 1986 requesting, in behalf of your client, Philippine Refining Company, Inc. (PRC) information as to the rate of sales tax on imported and local raw materials to be used in the manufacture of laundry soaps, detergents, margarines, toilet soaps and shampoos. In reply, please be informed that all of the said finished articles, except shampoos, are now subject to 10% sales tax in accordance with Section 163(2) of the Tax Code, as amended by Executive Order No. 36 effective August 1, 1986. Accordingly, the raw materials which are subject to the original sales tax imposed by Section 163 of the Tax Code, consisting of the imported mixture of odoriferous substances, flavors and other imported and local raw materials and local packaging materials are subject to the sales tax at the same rate of 10%, provided, that PRC shall certify to the domestic supplier-imported or manufacturer, in the case of local purchase by PRC, or to this Bureau, in case of raw materials directly imported by PRC, that all of said raw materials, shall be used exclusively in the manufacture of the abovementioned finished articles for sale, which are classified, for sales tax purposes, as essential articles, However, the local coconut oil, not being subject to the original sales tax, remains subject to 3% miller's tax imposed by Section 168 of the Tax Code. (Section 163(2), Tax Code, as amended; Section 6.II, Revenue Regulations No. 11-86). In case PRC fails to issue the certification, the raw materials considered as non-essential and ordinary articles shall be subject to the sales tax at the rate of 30% and 20%, respectively. With respect to the shampoo which is classified as an ordinary article subject to the 20% sales tax imposed by Section 163(4) of the Tax Code, it appears that the major component thereof is imported mixture of odoriferous substance which is a non-essential article subject to the 30% advance sales tax. Under the circumstances, this Office believes that said imported raw material is still subject to 30% advance sales tax, although the finished article is subject to the lower rate of 20%. That the raw material should invariably be subject to the same rate of tax as the finished article, does not seem to have any legal basis under the new sales tax law embodied in Executive Order No. 36, if the finished articles are ordinary articles taxed at 20%. aisadc Very truly yours, (SGD.) ROMULO M. VILLA Acting Commissioner