Publishing Presidential Decree No. 1359, Dated April 21, 1978, Amending Section 134 of the National Internal Revenue Code of 1977

April 25, 1978 REVENUE MEMORANDUM CIRCULAR NO. 032-78 SUBJECT : Publishing Presidential Decree No. 13 59, Dated April 21, 1978, Amending Section 134 of the National Internal Revenue Co de of 1977 TO : All Internal Revenue Officers and Others Concerned For the information and guidance of all concerned, published hereunder is the full text of Presidential Decree No. 1359, viz.: "MALACAANG Manila "PRESI DENTIAL DECREE NO. 13 59 "AMENDING SECTION 134 OF THE NATIONAL INTE RNAL REVENUE CO DE OF 1977 "WHEREAS, under the present law oil products sold to International carriers are subject to the specific tax; "WHEREAS, to foster goodwill and better relationship with foreign countries, there is a need to grant similar tax exemption in favor of foreign international carriers; "NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines, by virtue of the powers vested in me by the Constitution, do hereby order and decree the following: "SECTION 1. Section 134 of National Internal Revenue Code of 1977 is hereby amended to read as follows: "SEC. 134. Articles subject to specific tax . Specific internal revenue taxes apply to things manufactured or produced in the Philippines for domestic sale or consumption and to things imported, but not to anything produced or manufactured here which shall be removed for exportation and is actually exported without returning to the Philippines, whether so exported in its original state or as an ingredient or part of any manufactured article or product. "HOWEVER PETROLEUM PRODUCTS SOLD TO AN INTERNATIONAL CARRIER FOR ITS USE OR CONSUMPTION OUTSIDE OF THE PHILIPPINES SHALL NOT BE SUBJECT TO SPECIFIC TAX, PROVIDED , THAT THE COUNTRY OF SAID CARRIER EXEMPTS FROM TAX PETROLEUM PRODUCTS SOLD TO PHILIPPINE CARRIERS. "In case of importations, the internal revenue tax shall be in addition to the customs duties, if any." "SEC. 2. This Decree shall take effect immediately. "DONE in the City of Manila, this 21st day of April, in the year of our Lord, nineteen hundred and seventy-eight. aisa dc "(SGD.) FERDINAND E. MARCOS President "By the President: "(SGD.) JACOBO C. CLAVE Presidential Executive Assistant" Features of the Amendment Under the old provisions of Section 134 of the Tax Code of 1977, nothing is mentioned concerning the non-taxability of petroleum products sold to international carriers for their use or consumption outside of the Philippines. However, on the basis of BIR ruling issued by then Commissioner Benjamin N. Tabios in 1965 and reiterated by then Commissioner Misael P. Vera in 1975, no specific tax was collected on removals of aviation gasoline from local oil refineries for sale to international carriers for the reason that the sale was not intended for domestic consumption . With the promulgation of PD 1119, effective on May 15, 1977, the practice of allowing refineries to remove under bond petroleum products without the prepayment of the tax due for storage in their bonded terminals has been discontinued, except in the case of Petrophil, owned and operated by PNOC, a government-owned corporation. Hence, all petroleum products removed from the refineries are considered taxpaid upon removal therefrom although the law allows payment of tax due within 15 days from date of removal. Because of that change, petroleum products sold or delivered to international carriers were already deemed taxpaid and the oil refineries are claiming tax credit for specific taxes paid on said products sold to international carriers invoking the Tabios and Vera rulings. While it is believed that the said ruling is erroneous because the sale by local oil companies of petroleum products to international carriers in the Philippines constitutes domestic sale and therefore , taxable , a reversal of the said ruling is not legally feasible due to the provision in the Tax Code against the retroactivity of reversals of rulings if the effect thereof would be prejudicial to the taxpayer. Furthermore, the reversal of said ruling is anticipated to result in the minimal purchase of domestic petroleum products by international carriers which could refuel fully in some nearby countries. It could also encourage international carriers to establish depots in the country and import oil products for their foreign flights using foreign exchange in the process. Countries of international carriers adversely affected by a reversal of the ruling might retaliate by imposing taxed on oil products purchased by the Philippine Airlines and other domestic carriers in those countries. In the light of the foregoing, and to foster better relationship with other countries, it has become imperative to clearly spell out in the Tax Code that petroleum products sold to international carriers for their use or consumption outside of the Philippines shall be exempt from specific taxes, provided the country of the said carries exempts from tax petroleum products sold to Philippine carriers. Hence, Presidential Decree No. 1359 has been promulgated. In effect, starting April 21, 1978, the date Presidential Decree No. 1359 was promulgated, local oil companies may sell tax-free petroleum products to any international carrier for its use or consumption outside of the country subject, however, to the principle of reciprocity, that is, the country of such carrier shall likewise allow the sale of tax-free petroleum products to Philippine carriers. The amendment to Section 134 took effect on April 21, 1978 when Presidential Decree No. 1359 was promulgated. All internal revenue officers and others concerned with the enforcement of internal revenue laws, particularly relating to specific tax on petroleum products, are hereby enjoined to be guided accordingly and to give the decree a wide publicity as possible. aisa dc EFREN I. PLANA Acting Commissioner of Internal Revenue TAN-P4519-F2828-A-8