Computation of the Percentage Tax Imposed on Imported Jute Bags or Fiji Cloth for Local Use and Resale

July 21, 1959 BIR RULING NO. 350-59 Mr. Carlos B. Hilado Attorney-at-Law 210 Ayala Bldg., Manila Re: Victorias Milling Co . , Inc . S i r : In reply to your letters, dated June 4, 22, and 26, and July 2, 1959, and received by this Office on June 4, 24, 26 and July 2, 1959, respectively, I have the honor to inform you that your further request for reconsideration of BIR Ruling No. 116, Series of 1959, cannot be granted. Jute bags or Fiji cloth or similar bag containers of sugar are subject to the sales tax imposed by section 186, and not under section 189, of the Tax Code, as amended. When the same are imported, the 7% sales tax established in section 186 shall be paid in advance by the importer thereof, pursuant to section 183(b) of the same Code. There is no question that the importation of said bag containers of sugar, if purposely imported for use in the preparation of articles for exportation and actually exported without returning to the Philippines, are exempt from the advance sales or compensating taxes, imposed in section 186 in relation to section 183(b), and section 190, respectively, of the Tax Code, as amended. However, when said sugar bag containers are imported merely to be locally sold, resold, bartered or exchanged, or to be used as containers of sugar for local public consumption, then, the said importation would be subject to the advance sales tax imposed in section 186 in relation to section 183(b) of the Tax Code. The sugar bag containers in question can never be used as raw materials in the manufacture of sugar but merely as materials in the preparation of sugar. Jute bags or Fiji cloth are used to contain a finished product (sugar) for public consumption. As already stated, jute bags or Fiji cloth are subject to tax under section 186, and not under section 189, of the Tax Code. While it is true that sugar is subject to tax under section 189 of the said Code, nevertheless, said sugar bag containers are not subject thereto. Your claim, therefore, that the exempting provision of section 188(d) will apply in computing the percentage tax imposed on imported jute bags or Fiji cloth for local use and resale is without merit. Precisely, section 188(d) of the Tax Code expressly exempts from tax "articles subject to tax under section one hundred eighty-nine of this Code" in computing the tax imposed in sections 184, 185 and 186 because manufactured sugar is taxed and specially treated under section 189. We admit that the words "or are to be used in the manufacture or preparation of articles for sale, barter, or exchange" were inadvertently omitted in the quoted portion of section 190 of the Tax Code in our pervious letter to you dated June 3, 1959, but you will notice that we included the above-omitted statement in our succeeding paragraph which explains the quoted provision of law. For purposes of clarity, however, we hereto reiterate our ruling that the pertinent proviso of section 190 of the Tax Code which states " Provided , however , That merchants, importers, and manufacturers, who are subject to tax under sections one hundred eighty-six, or one hundred eighty-nine of this Title, shall not be required to pay the tax herein imposed where such commodities, goods, wares, or merchandise purchased or received by them from without the Philippines are to be sold, resold, bartered, or exchanged or are to be used in the manufacture or preparation of articles for sale, barter, or exchange and are to form part thereof:" exempts the merchants, importers, and manufacturers from the compensating tax imposed in the same section because imported commodities or articles to be used in the manufacture or preparation of articles for sale, barter, or exchange, are subject to the advance sales tax prescribed by the pertinent sections, in relation to section 183(b), of the Tax Code, as amended. In view of the foregoing, your request for further reconsideration of BIR ruling no. 116, Series of 1959, has to be, as it is hereby, denied. Very truly yours, (SGD.) MELECIO R. DOMINGO Commissioner of Internal Revenue