Publishing Republic Act No. 4122 Amending Section 185 (g) of the Tax Code and Inserting therein a New Section Numbered 185-B

December 1, 1964 REVENUE MEMORANDUM CIRCULAR NO. 04-65 SUBJECT : Publishing Republic Act No. 4122 Amending Section 185 (g) of the Tax Code and Inserting therein a New Section Numbered 185-B TO : All Internal Revenue Officers and Others Concerned For the information and guidance of all concerned, there is quoted below Republic Act No. 4122, to wit: llcd "SECTION 1. Section one hundred and eighty five of Commonwealth Act Numbered Four Hundred and Sixty-six, as amended, is hereby further amended by deleting from subsection (g) thereof the following articles: phonographs, combination radio and phonographs sets, television sets, combinations radio and television sets, gramophones, and similar articles for reproducing music. "SEC. 2. A new section is hereby inserted between Sections one hundred eighty-five and one hundred eighty six, which shall read as follows: "'SEC. 185-B. Percentage tax on sales of phonographs, combination radio and phonograph sets of all types, television sets, combination radio and television sets, gramophones and similar articles . There shall be levied, assessed, and collected, once only on every original sale, barter, exchange, or similar transaction intended to transfer ownership of, or title so, the articles hereinbelow enumerated a tax equivalent to thirty per centum of the gross selling price or gross value in money of the articles so sold, bartered, exchanged or transferred, such tax to be paid by the manufacturer or producer: Provided, however , that where the articles hereinbelow enumerated are locally manufactured articles as hereinafter defined, the tax shall be seven per centum . Provided, further , that where the articles enumerated hereinbelow are manufactured from materials subject to tax under this section, the total cost of such materials shall be deducted from the gross selling price or gross value in money of such manufactured Articles: (a) phonographs; (b) combination radio and phonographs sets of all types: (c) television sets; (d) combination radio and television sets; (e) combination radio-phonographs-television sets; (f) gramophones; and (g) similar articles for reproducing and/or recording music and sound, like tape recorders, etc. "'The words 'locally manufactured articles' mean articles manufactured in a manufacturing enterprise which processes physically and/or chemically raw materials such as copper-clad boards, silicon, steel laminations, other metal sheets, wires, plastic powder and/or pallets, fiber boards, wood, metallic and non-metallic tubes, rods, special paper etc., into the various intermediate components and parts, and subsequently assembling or fitting them together with other imported collaterals or intermediate components and parts into such completed and finished articles: Provided however , that if the following parts are intermediate components of a finished article, except as used in the tuner assembly, they must be locally manufactured within the manufacturing enterprise or any other manufacturing enterprise: LibLex 1. printed circuit boards; 2. transformers; 3. coils, except yoke and flyback, and sheet metalware attached thereto except the mask; 4. cabinets 5. chassis. "SEC. 3. This act shall take effect upon its approval. "Approved, June 20, 1964." Features of the Amendment 1. The amendment of Section 185(g) and the addition of a new section denominated Section 185-B . Several articles for reproducing music were removed from the purview of subsection (g) of Section 185 and transferred to a new section numbered 185-B. By reason of the amendment, only pianos, phonograph records (except those used for educational purposes) and juke boxes are now covered by said subsection of Section 185; while Section 185-B covers the following articles: (a) phonographs; (b) radio and phonograph sets; (c) television sets; (d) radio and television sets; (e) radio-phonograph-television sets; (f) gramophones; and (g) similar articles for reproducing and/or regarding music and sound, like tape recorders, etc. 2. Rates of tax prescribed by Section 185-B . (a) When the finished articles enumerated therein are imported 30%; (b) When the finished articles are "locally manufactured articles" as defined herein 7%; (c) Parts and accessories imported by domestic manufacturers for use in their manufacture of articles defined herein as "locally manufactured articles 30%; (d) Parts and accessories imported for resale in their original state or imported by domestic manufacturers who are not producers of "locally manufactured articles" as defined herein 30%; (e) Parts and accessories locally manufactured 7%. 3. Locally manufactured articles ; definition expounded . Where the parts and components are manufactured by the local manufacturer, and such manufactured parts and components are fitted or assembled within the manufacturing enterprise together with other imported collaterals or intermediate components and parts to produce the finished article, his products qualify as "locally manufactured articles", subject to the 7% sales tax provided that, if the following items (except as used in the tuner assembly): LLphil (a) printed circuit boards, (b) transformers, (c) coils, except yoke and flyback, and sheet metalware attached thereto, except the mask, (d) cabinets, and (e) chassis, are intermediate components of the finished article, they must be manufactured by the local manufacturing enterprise or procured by it from other local manufacturers of such items. However, if any of the items indicated above are imported and used by the local manufacturing enterprise, the latter's products cannot qualify as "locally manufactured articles" within the definition prescribed by the law, in which event the tax due on such products shall be 30%. 4. Implementation . A manufacturing enterprise desiring to establish the qualification of its products as "locally manufactured articles" must file a written application with the Commissioner of Internal Revenue stating, among others, the following: (1) Kinds of articles manufactured and the various components and parts thereof; (2) The components and parts of each finished article which he is manufacturing and raw materials used and the process of manufacture thereof; (3) The components and parts which he imports or shall obtain from importers, wholesalers or dealers in such imported articles; (4) The components and parts which he procures from other local manufacturers and the latter's names and addresses; and (5) The machineries and equipment used by him in his manufacture. The Commissioner shall determine the classification of the products for which classification was requested after appropriate investigation and inform the applicant accordingly. 5. Guide in investigations . The investigating internal revenue officer or officers should observe the plant facilities of the applicant and the actual manufacturing operations therein. Such officer shall ascertain by actual observation the manufacture of the components and parts which the applicant represents (in his/its application) to produce. The components and parts which the applicant claims in his/its application to be or to have been purchased from other local manufacturers should also be checked by actual observation of the manufacturing operations of the corresponding local manufacturer. The imported components and parts shall be checked with the corresponding shipping documents or from invoices of other importers or dealers of such imported components, parts or articles. Finally, the final act of assembling the various intermediate components and parts within the domestic manufacturing enterprise should be observed. For particular emphasis, the law materials used and the process of manufacture of the five (5) components and parts which the law requires to be manufactured by the manufacturing enterprise or purchased from other local manufacturers are indicated below, viz: Components and Parts Raw Materials Process 1. Printed circuit copper-coated or copper-clad 1. Application of boards board in sheets, with or chemical resistant without pre-punched holes on the conducting paths of the circuit by silk-screen process or any similar process. 2. Etching by chemical treatment to bring out the circuit pattern. 2. Transformers 1. Silicon steel laminations 1. Fabrication of coil or other metal sheets forms or strips and/or ferrite cores, whether or not 2. Coil winding pre-punched or pre-formed 3. Core assembling 2. Fiber boards 4. Insulation impregnation and/or 3. Non-metallic tubes and encapsulation rods 5. Assembling 4. Wires 5. Special insulating paper 6. Insulating, impregnating 7. and/or encapsulating materials or compounds 3. Coils (except yoke 1. Ferrite cores 1. Coil winding and flyback), and sheet metalwares 2. Coil forms, metallic or 2. Insulation, attached thereto non-metallic tubes and impregnation or (except the mask) rods encapsulation 3. Sheet metal 3. Assembling 4. Fiber board 5. Wires 6. Special insulating paper 7. Insulating, impregnating and/or encapsulating materials or compounds 4. Cabinets 1. Wood 1. Carpentry or 2. Synthetic laminates molding or metal- forming 3. Fiber boards 2. Finishing 4. Plastic powder and pellets 5. Metallic and non-metallic tubes and rods 6. Sheet metal 7. Hardware 8. Paints, varnish and/or other finishes 5. Chassis 1. Metal sheets 1. Forming 2. Fiber board 2. Punching 3. Wood 3. Plating or painting 4. Metallic and non-metallic 4. Assembling tubes and rods 5. Rubber gremmets and other insulating parts 6. Hardware The listing of raw materials shall not be deemed to exclude other kinds of raw materials which may subsequently be discovered and/or utilized in the manufacture of the components and parts, nor is it required that all such raw materials be used inasmuch as some of the raw materials enumerated may be used alternatively to suit the particular specification of the component or part. The description of the processes does not impose the requirement that all of such processes be performed, nor does it preclude the use of any other process which would accomplish the same end, i.e., the manufacture of the component or part thereof. LLjur 6. Periodic inspection . The Commissioner of Internal Revenue may designate any internal revenue officer to conduct periodic inspection of the plants and premises of the concerned industries. For this purpose, the written designation of the internal revenue officer in whatever form accomplished (by letter, memorandum, special order, etc.) shall serve as an authority (either restrictive or continuing authority, as the case may be) for him to conduct such inspection. 7. Monthly report . The concerned industry shall submit to the Commissioner of Internal Revenue a monthly report for the preceding month on imported raw materials, components and parts showing (a) The original quantity of imported components and parts either imported directly or procured from dealers thereof; (b) The quantity used in manufacture and kind of article wherein used; (c) Number of units manufactured out of the imported articles; (d) Number of units still in process; and (e) Number of units transferred from the factory to wholesale or retail outlets (including outlets operated by the concerned industry). He shall further certify that there has not been a substantial change in the procedure of operations or manufacture as will affect or change his status or qualification as manufacturer of "locally manufactured articles" as defined herein. Effectivity Republic Act No. 4122 took effect on June 20, 1964, the date it was approved by the President. Therefore, only articles locally manufactured articles" as defined herein are entitled to the reduced rate of tax. Those manufactured before June 20, 1964, are subject to 30% tax even if sold on or after said date. Enforcement and Publicity All internal revenue officers and others concerned are enjoined to be guided accordingly. (SGD.) BENJAMIN N. TABIOS Acting Commissioner of Internal Revenue APPROVED: (SGD.) RUFINO G. HECHANOVA Secretary of Finance