Computation of the Total Cost of Deductible Raw Materials

June 2, 1959 BIR RULING NO. 275-59 Messrs. Sycip, Gorres, Velayo & Co. Certified Public Accountants P. O. Box 589, Manila Gentlemen : Reference is made to your letter dated May 28, 1959, stating that your client, Commonwealth Foods, Inc., is a tax-exempt corporation under Republic Act No. 901; that it is engaged in the manufacture of coffee and, for that purpose, it imports raw materials. You now request information whether in the computation of the total cost of deductible raw materials, it is the full amount of customs duty payable on such raw materials or the amount equivalent to 10% of the customs duty, which was actually paid thereon, that should be considered. You further stated that your request is being made in view of the conflicting ruling of this Office dated February 10, 1959 and that contained in the first indorsement dated February 18, 1959 of the Secretary of Finance to the Commissioner of Customs on the matter of customs duty that should be included in computing the total landed cost of an imported article for the purpose of determining the advance sales tax due thereon. In answer thereto, I have the honor to inform you that the aforesaid ruling of this Office was superseded by that contained in the abovementioned indorsement of the Secretary of Finance. Accordingly, the prevailing rule on the matter of computing the total landed cost of an article imported by a new and necessary industry, for purposes of the advance sales tax, is that the full amount of customs duty payable, and not the amount actually paid (which is equivalent to 10% thereof), on the article should be considered. Such being the case, for the purpose of arriving at the total cost of deductible raw materials, the full amount of customs duties, and not the reduced rate of 10% thereof, should likewise be taken into account. cdtech Very truly yours, (SGD.) JOSE ARAAS Commissioner of Internal Revenue