BIR Ruling [UN-052-94]

February 10, 1994 BIR RULING [UN-052-94] Commissioner Guillermo L. Parayno, Jr. Bureau of Customs Manila SUBJECT : Customs Memorandum Order Clarifying the composition of the landed cost as tax base for the computation of Value Added Tax on Importations subject thereto S i r : This refers to your letter dated January 13, 1994, requesting for a ruling regarding the inclusion of storage charges in the computation of the landed cost of imported goods subject to value added tax (VAT) under Section 101 of the Tax Code, as amended, pertinent portions of which provide as follows: "(a) In general There shall be levied, assessed and collected on every importation of goods a value added tax equivalent to 10% based on the total value used by the Bureau of Customs in determining tariff and customs duties, plus customs duties, excise taxes, if any, and other charges, such tax to be paid by the importer prior to the release of such goods from customs custody: Provided, that where the customs duties are determined on the basis of the quantity or volume of the goods, the value added tax shall be based on the landed cost plus excise taxes, if any." It is proposed in the subject Customs Memorandum Order that the phrase "other charges" in the above quoted provision shall include storage charges to be paid by the importer/broker and that since the storage charges are not usually known at the time of filing of import entries and can be ascertained only when the importer/broker pays the arrastre contractor/public customs bonded warehouse, the official receipt evidencing payment of the storage charges shall be presented to the Bureau of Customs for purposes of assessing and collecting the additional VAT on the importation. In reply, please be informed that under the first paragraph of Section 201 of the Revised Tariff and Customs Code, which provides thus: "The dutiable value of an imported article subject to an ad valorem rate of duty shall be based on the home consumption value or price (excluding internal excise taxes) on the same, like or similar articles, as bought and sold or offered for sale freely in the usual wholesale quantities in the ordinary course of trade, in the principal markets of the country from where exported from the date of exportation to the Philippines, or where there is none on such date, then on the home consumption value or price nearest to the date of exportation, including the value of all containers, coverings and/or packings of any kind and all other costs, charges and expenses incident to placing the article in a condition ready for shipment to the Philippines , plus ten (10) per cent of such home consumption value or price." it is apparent that the stated costs, charges and expenses includible in the home consumption value for duty purposes, refer to those incurred prior to exportation of the articles from the foreign port of origin and not upon arrival at the customs territory and storage thereof in the local bonded warehouse. Since the VAT on imported articles is based on the total value used by the Bureau of Customs in determining tariff and customs duties, plus excise taxes if any and other charges pursuant to Section 201 of the Revised Tariff and Customs Code, storage charges which are normally paid by an importer/broker when the goods are to be brought out of the customs bonded warehouse after duties and taxes have been paid, shall not form part of the dutiable value/home consumption value/landed cost of the imported article for VAT purposes. On the other hand, the arrastre contractors/public customs bonded warehouse are subject to 10% VAT on their gross receipts from storage fees on imported articles, which tax may be ultimately shifted to the importer/broker, pursuant to Section 102 of the Tax Code as amended. cdtech The laudable objective to generate additional revenues is recognized. However, the letter of the law is explicit and could not be interpreted to include storage charges as part of the basis of dutiable value/home consumption value for VAT purposes. Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue