Clarification on the provision of the third paragraph of Section 142(d) of the National Internal Revenue Code (NIRC), as amended, by Republic Act No. 7654 that "The twenty percent (20%) mark-up and the minimum taxes provided in this Section shall be automatically increased in 1996 by ten percent (10%)"

January 3, 1996 REVENUE MEMORANDUM CIRCULAR NO. 01-96 SUBJECT : Clarification on the Provision of the Third Paragraph of Section 142(d) of the National Internal Revenue Code (NIRC), as Amended, by Republic Act No. 7654 that "The Twenty Percent (20%) Mark-up and the Minimum Taxes Provided in This Section Shall be Automatically Increased in 1996 by Ten Percent (10%)" TO : All Internal Revenue Officers and Others Concerned Constructive manufacturer's or importer's wholesale price or the tax base used in computing the excise tax for cigars and cigarettes is defined as the price, including the amount of excise tax imposed under Section 142, Chapter 4, Title VI, and the amount of the value added tax imposed under Title VI, both of the NIRC, at which locally manufactured or imported cigars and cigarettes are offered for sale to the wholesalers or distributors as fixed by the manufacturer or importer and registered with the Bureau of Internal Revenue plus a mark-up of twenty percent (20%) of such price. Pursuant to Section 2(2.1) of Revenue Regulations No. 1-94 implementing Sec. 142 of the NIRC as amended by R.A. No. 7654, the twenty percent (20%) mark-up and the minimum taxes prescribed in the said Sec. 142 shall be increased automatically in 1996 by ten percent (10%). Under Section 3 of Revenue Regulations No. 1-94, the respective minimum taxes on cigars and cigarettes are as follows: (a) Cigars There shall be levied, assessed and collected on cigars a tax of ten percent (10%) of the constructive manufacturer's or importer's wholesale price or the actual manufacturer's or importer's wholesale price, whichever is higher. (b) Cigarettes packed by hand There shall be levied, assessed and collected on cigarettes packed by hand a tax of fifteen percent (15%) of the constructive manufacturer's wholesale price or the actual manufacturer's wholesale price, whichever is higher. (c) Cigarettes packed by machine There shall be levied, assessed, collected on cigarettes packed by machine a tax at the rates prescribed below based on the constructive manufacturer's wholesale price or the actual manufacturer's wholesale price, whichever is higher. (1) On locally manufactured cigarettes which are currently classified and taxed at fifty five percent (55%) or the exportation of which is not authorized by contract or otherwise, fifty five percent (55%) provided that the minimum tax shall not be less than Five pesos (P5.00) per pack. (2) On other locally manufactured cigarettes, forty five percent (45%) provided that the minimum tax shall not be less than Three pesos (P3.00) per pack. Accordingly, effective January 01, 1996, the twenty percent (20%) mark-up and the minimum taxes for cigars and cigarettes shall be automatically increased by ten percent (10%) as illustrated below: 1. Mark-up 20% x 10% = 2% 20% + 2% = 22% ==== 2. On locally manufactured cigarettes which are currently classified and taxed at fifty-five percent (55%) or the exportation of which is not authorized by contract or otherwise the minimum tax shall be P5.50 per pack P5.00 x 10% = P0.50 P5.00 + P0.50 = P5.50 ==== 3. For other locally manufactured cigarettes, the minimum tax shall be P3.30 per pack. P3.00 x 10% = P0.30 P3.00 + 0.30 = P3.30 ===== 4. For imported cigarettes currently taxed at 55% of the constructive importer's wholesale price or the actual importer's wholesale price where there is no minimum floor tax, the tax shall be based on constructive wholesale price or actual importer's wholesale price + 22% mark-up x 55% rate of AD VALOREM TAX, whichever is higher. Computation of constructive wholesale price/pack : Prior Jan. 1, 1996 Jan. 1, 1996 Wholesale price per BIR registration P10.00/pack P10.00/pack Add: 20% mark-up/22% 2.00 2.20 Constructive Wholesale Price P12.00/pack P12.20/pack Tax due thereon (55%) P6.60 P6.71 ===== ===== Prior Jan. 1, 1996 Jan. 1, 1996 Total number of packs in one case 500 500 Multiplied by applicable tax per pack P5.00 P5.00 Excise (Specific) Tax due thereon P2,500.00 P2,750.00 ======= ======== On imported cigarettes . The ad valorem tax shall be computed based on the constructive importer's wholesale price or the actual importer's wholesale price, whichever is higher. No floor tax is considered in the computation of excise tax pertaining to imported cigarettes. ILLUSTRATION : "Y CORPORATION", a domestic corporation, is a duly BIR-registered importer of "ABC CIGARETTES". Its BIR-registered wholesale price for the said imported brand of cigarettes is at P25.00 per pack. Compute the ad valorem tax due if Y CORPORATION imported 20 cases of "ABC CIGARETTES", each case containing fifty (50) cartons of ten (10) packs per carton. At the time of importation, Y CORPORATION'S actual wholesale price is P29.00 per pack. COMPUTATIONS : Computation of constructive wholesale price: Prior Jan. 1, 1996 Jan. 1, 1996 Wholesale price per BIR-registration P25.00/pack 25.00/pack Add: 20% mark-up/22% 5.00 5.50 CONSTRUCTIVE WHOLESALE PRICE P30.00/pack P30.50/pack =========== ========== In this case, the constructive wholesale price of P30.50 per pack shall be taken because it is higher in amount compared with the actual wholesale price of only P29.00 per pack. Actual wholesale price P11.00 Tax due thereon (55%) P6.05 Floor tax per pack P5.00 P5.50 ====== ===== In this case, since applying the tax rate on the manufacturer's constructive wholesale price of P12.20 per pack results in a higher tax take the determination of the ad valorem tax for one case of cigars/cigarettes to be removed from factory premises shall be based on the constructive wholesale price. Computation of the Ad Valorem Tax: Prior Jan. 1, 1996 Jan. 1, 1996 50 cartons multiplied by 10 packs per carton 500 packs 500 packs 500 packs multiplied by P12/pack 6,000.00 P12.20/pack 6,100.00 Tax due thereon (P6,000.00 multiplied by 55%) 3,300.00 ======= (P6,100.00 multiplied by 55%) P3,355.00 ======== Compute the amount of excise tax due on one (1) case of "YYY Cigarettes" containing fifty (50) cartons of ten (10) packs per carton. These are locally manufactured cigarettes packed by machine and taxable at the rate of 55%. The minimum tax shall not be less than P5.00 per pack. The registered wholesale price per pack is P7.50 but the actual manufacturer's wholesale price is P8.50 per pack. COMPUTATION Take the higher amount as tax base which is P9.00 (P7.50 + 20% thereof constructive manufacturer's wholesale price). Prior Jan. 1, 1996 Jan. 1, 1996 Constructive Price per pack P7.50 + 20% thereof P9.00 P7.50 + 22% thereof P9.15 Times Tax Rate 55% 55% Excise Tax Due Per Pack P4.95 P5.033 Floor Tax Per Pack P5.00 P5.50 Note: Apply the higher tax in the computation of excise tax due Computation of the Ad Valorem tax: Prior Jan. 1, 1996 Jan. 1, 1996 20 cases multiplied by 50 cartons/case 1,000 cartons 1,000 cartons 1,000 cartons multiplied by 10 packs/carton 10,000 packs 10,000 packs 10,000 packs multiplied by P30/pack P300,000.00 P30.50/pack P305,000.00 Tax due thereon (P300,000 multiplied by 55%) 165,000.00 (P305,000 multiplied by 55%) P167,750.00 It is enjoined that this circular be given as wide a publicity as possible. LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue