Deductibility of the Costs of Raw Materials Used in the Manufacture of Bread

August 13, 1959 BIR RULING NO. 401-59 Uno (1) Bakery Chiong Eng & Company 214 Quezon Boulevard Quiapo, Manila Gentlemen : In answer to your letter of the 10th instant, requesting information on the deductibility of the costs of raw materials used in your manufacture of bread, for the purpose of computing the 7% sales tax payable on the latter, I have the honor to inform you as follows: The costs of raw materials purchased from tax-exempt industries which you use in manufacturing bread are deductible from the gross selling price of the latter, pursuant to section 186-A of the National Internal Revenue Code. This holds true regardless of whether such raw materials are otherwise taxable under sections 184, 185, 186 or 189 of said Code. With respect to raw materials purchased from non-tax-exempt persons or entities, only the costs of raw materials which have previously been subjected to the tax under either section 186 or 189 of the Tax Code are deductible. Accordingly, and considering that "Del Monte" crushed and sliced pineapples, as well as juices thereof, are exempt from the 7% sales tax, the costs thereof are not deductible from the gross selling price of the bread manufactured therefrom. On the other hand, diversified local corn starch and cassava flour being taxable under section 186 of the same Code, the costs thereof are deductible, provided that the 7% sales tax due thereon had been previously paid. Very truly yours, (SGD.) MELECIO R. DOMINGO Commissioner of Internal Revenue