Containers for Essential Articles Subject to 10% Sales Tax

November 19, 1986 BIR RULING NO. 252-86 163 (2) 165-86 252-86 Gentlemen : This refers to your letter dated August 1, 1986 stating that you are engaged in the manufacture of packaging materials like corrugated boxes, metal cans and plastic containers; that you service a wide variety of industry engaged in the manufacture of essential articles; that the metal cans you manufactured are used to pack processed fruits, fish, powdered milk, yeast and beverages like coffee, that the corrugated boxes are used to contain those metal cans while the corrugated boxes are manufactured to contain medicine, edible cooking oil, laundry soap and poultry feeds. Based on the foregoing, you now request opinion as to whether the sale of the aforementioned articles to your customers engaged in the manufacture of essential articles is subject also to the same rate of 10%. In reply, please be informed that any article subject to the original sales tax, when used as a raw material in the manufacture or preparation of essential articles, shall, subject to certain conditions be taxed at the same rate as the finished product, except when such material is taxed at a lower rate. (Section 163(2), Tax Code as amended by Executive Order No. 36 effective August 1, 1986). This Office has ruled that containers are considered raw materials of the manufactured articles. (BIR Ruling No. 66-027 dated June 29, 1966). Accordingly, since the finished articles, i.e., processed fruits, fish, powdered milk, yeast, beverages, coffee, medicine, edible cooking oil (except refined coconut oil which is subject to the miller's tax under Section 168 of the Tax Code), laundry soap and poultry feeds are classified as essential articles subject to 10% sales tax, the aforementioned corrugated boxes, metal cans and plastic containers which that corporation manufactures are subject to the same rate of 10%, provided that the purchasers shall certify to the manufacturer (United Container Corporation) that the aforesaid materials shall be used exclusively as containers for the said finished articles. If the purchasers fail to issue the certification, the aforementioned containers will be subject to 20% sales tax. cdta Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner of Internal Revenue