Articles Deductible from the Gross Selling Price

July 31, 1959 BIR RULING NO. 389-59 The Philippine Free Press 708 Rizal Avenue M a n i l a Gentlemen : This is in connection with the query of Mr. Eduardo Quioc which you referred to this Office for a reply. The pertinent provisions of section 186 of the National Internal Revenue Code reads as follows: ". . . Provided , That where the articles subject to tax under this section are manufactured out of materials likewise subject to tax under this section and section one hundred and eighty-nine, the total cost of such materials, as duly established, shall be deductible from the gross selling price or gross value in money of such manufactured articles: . . ." It will be noted from the aforequoted provisions of the law that in order that the value of an article may be deducted from the gross selling price or gross value in money of finished articles taxable under section 186 of the National Internal Revenue Code, said article must be (1) used as a raw material in the manufacture of the finished article and (2) must be an article subject to tax under section 186 or section 189 of the Tax Code. Both requisites must be complied with, otherwise, the value thereof is not deductible. Among the articles listed in the letter of the taxpayer, only the cost of the following are deductible from the gross selling price of the finished article: 1. varnish 3. plastic strap 2. nails 4. twine (abaca-binding) The cost of the rest of the articles mentioned in the letter of the taxpayer are not deductible because either they are not raw materials used in the manufacture of the finished product or that they are not subject to tax under section 186 or 189 of the Tax Code. In this connection, please be further informed that as manufacturer of wooden shoes, the taxpayer is subject to the 7% sales tax on his gross sales of wooden shows and to the fixed tax of P20.00 prescribed in section 186 and 182 of the Tax Code, respectively. As requested, the basic letter is returned herewith. Very truly yours, (SGD.) MELECIO R. DOMINGO Commissioner of Internal Revenue