Publishing the Amendments Effected by Presidential Decree No. 69 to Title IV of the National Internal Revenue Code

January 9, 1973 REVENUE MEMORANDUM CIRCULAR NO. 04-73 SUBJECT : Publishing the Amendments Effected by Presidential Decree No. 69 to Title IV of the National Internal Revenue Code TO : All Internal Revenue Officers and Others Concerned For the information and guidance of all concerned, there is published below certain sections of Title IV of the National Internal Revenue Code, as amended by Presidential Decree No. 69, viz.: Title IV Specific Taxes SEC. 128. Exemption in favor of domestic denatured alcohol . Domestic alcohol of not less than one hundred eighty degrees proof (ninety per centum absolute alcohol) shall when suitably denatured and rendered unfit for oral intake, be exempt from the specific tax prescribed in section one hundred thirty-three: Provided, however , That such denatured alcohol shall be subject to tax under Sec. 186: Provided, further , That if such alcohol is to be used for motive power, it shall be taxed under section one hundred and forty-two (d) of this Code. SEC. 133. Specific tax on distilled spirits . On distilled spirits there shall be collected, subject to the provisions of Section one hundred and twenty-eight of this Code, except as hereinafter provided, specific taxes as follows: (a) If produced domestically from locally produced raw materials, per proof liter, eighty-five centavos: Provided , That if produced in a pot still or other similar primary distilling apparatus, by a distiller producing not more than one hundred liters a day, containing not more than fifty per centum of alcohol by volume, per proof liter, seventy-eight centavos; (b) If imported or produced from imported raw materials, per proof liter, twenty pesos. This tax shall be proportionally increased for any strength of the spirits taxed over proof spirits. "Spirits" or "distilled spirits" is the substance known as ethyl alcohol, ethanol, or spirits of wine, including all dilutions and mixtures thereof, from whatever source or by whatever process produced, and shall include whisky, brandy, rum, gin, and vodka, and other similar products or mixtures. "Proof spirits" is liquor containing one-half of its volume of alcohol of a specific gravity of seven thousand nine hundred and thirty-nine ten thousandths at fifteen degrees centigrade. A proof liter means a liter of proof spirits. SEC. 134. Specific tax on wines . On wines and imitation wines there shall be collected, per liter of volume capacity, the following taxes: (a) Sparkling wines, regardless of proof twelve pesos; if imported, fifteen pesos; (b) Still wines containing fourteen per centum of alcohol or less, (except those manufactured from locally grown raw materials); one peso; if imported, one peso and fifty centavos; (c) Still wines containing more than fourteen per centum of alcohol, two pesos; if imported, three pesos. Imitation wines containing more than twenty-five per centum of alcohol shall be taxed as distilled spirits. SEC. 135. Specific tax on fermented liquors . On beer, lager beer, ale, porter, and other fermented liquors (except tuba, basi, tapuy, and similar domestic fermented liquors), there shall be collected, on each liter of volume capacity, thirty-two and one-half centavos: Provided , That if the fermented liquor is imported, the tax shall be increased by one hundred per cent. SEC. 136. Specific tax on products of tobacco . On manufactured products of tobacco, except cigars, cigarettes, and tobacco specially prepared for chewing so as to be unsuitable for consumption in any other manner, but including all other tobacco twisted by hand or reduced into a condition to be consumed in any manner other than by the ordinary mode of drying and curing; and on all tobacco prepared or partially prepared for sale or consumption, even if prepared without the use of any machine or instrument and without being pressed or sweetened; and on all fine-cut shorts and refuse, scraps, clippings, cuttings, stems, and sweepings of tobacco, there shall be collected on each kilogram, seventy-five centavos: Provided, however , That fine-cut shorts and refuse, scraps, clippings, cuttings, stems, and sweepings of tobacco resulting from the handling or stripping of whole leaf tobacco may be transferred, disposed of, or otherwise sold, without prepayment of the specific tax herein provided for under such conditions as may be prescribed in the regulations promulgated by the Secretary of Finance upon recommendation of the Commissioner if the same are to be exported or to be used in the manufacture of other tobacco products on which the specific tax will eventually be paid on the finished product. On tobacco specially prepared for chewing so as to be unsuitable for use in any other manner, on each kilogram, sixty centavos. SEC. 137. Specific tax on cigars and cigarettes . On cigars and cigarettes there shall be collected the following taxes: (a) Cigars (1) When the manufacturer's or importer's wholesale price, less the amount of the tax, does not exceed thirty pesos per thousand, on each thousand, two pesos and thirty centavos. (2) When the manufacturer's or importer's wholesale price, less the amount of the tax, exceeds thirty pesos but does not exceed sixty pesos per thousand, on each thousand, four pesos and sixty centavos. (3) When the manufacturer's or importer's wholesale price, less the amount of the tax, exceeds sixty pesos per thousand, on each thousand, seven pesos. (b) Cigarettes (1) On cigarettes packed in thirties, the retail price of which per pack does not exceed fifty centavos, on each thousand three pesos. (2) On cigarettes packed in thirties, the retail price of which per pack exceeds fifty centavos but does not exceed sixty centavos, on each thousand, five pesos. (3) On cigarettes packed in thirties, the retail price of which per pack exceeds sixty centavos, on each thousand, eight pesos. (4) On cigarettes packed in twenties, the retail price of which per pack does not exceed eighty centavos, on each thousand, eight pesos. (5) On cigarettes packed in twenties, the retail price of which per pack exceeds eighty centavos but does not exceed one peso, on each thousand, fourteen pesos. (6) On cigarettes packed in twenties, the retail price of which per pack exceeds one pesos but does not exceed one peso and thirty centavos, on each thousand, sixteen pesos. (7) On cigarettes packed in twenties, the retail price of which per pack exceeds one peso and thirty centavos, on each thousand, twenty-five pesos. (8) If the cigarettes of local manufacture are mechanically wrapped or packed, the tax shall be increased by one hundred and twenty per centum per thousand cigarettes. Cigarettes shall be considered as mechanically wrapped or packed when at any stage of the wrapping or packing a machine or any mechanical contrivance shall have been used. (9) If the cigarettes are of foreign manufacture, the tax thereon shall be the same as that prescribed under sub-paragraph (7), paragraph (b) of this section, plus one hundred twenty per centum . Where the classification of cigarettes are duly established as prescribed above, the downward reclassification thereof shall not thereafter be allowed. The maximum price at which the various classes of cigars are sold at wholesale in the factory or in the establishment of the importer to the public shall determine the rate of the tax applicable to such cigars; and if the manufacturer or importer also sells, or allows to be sold his cigars at wholesale in another establishment of which he is the owner or in the profits of which he has an interest, the maximum sale price in such establishment shall determine the rate of the tax applicable to the cigars therein sold: Provided, however , That when such maximum wholesale price is less than the cost of manufacture or importations plus all expenses incurred until the cigars are finally sold by the manufacturer or importer, such cost plus expenses shall determine the amount of tax to be applied. Every manufacturer or importer of cigars shall file with the Commissioner on the date or dates designated by the latter, a sworn statement showing the maximum wholesale prices of cigars, together with the cost of manufacture or importation plus expenses incurred or to be incurred until the cigars are finally sold and it shall be unlawful to sell said cigars at wholesale at a price in excess of the one specified in the statement required by this Title without previous written notice to the Commissioner. In the case of imported cigars, the sworn statement required herein shall be accompanied by verified sales invoices of the manufacturers of the cigars as well as the consular invoices issued by a Philippine Consul, should one be available at the place of origin or shipment. The prevailing maximum retail price per pack containing twenty or thirty cigarettes as of the date of the effectivity of the new rates herein prescribed shall be the basis for the rate of tax applicable. Duly registered and/or existing brands of cigarettes packed in 20's at the time of the effectivity of the new rates herein prescribed shall not be allowed to be packed in 30's and neither shall any new brand of cigarettes be registered nor allowed to be manufactured if the same shall be packed in 30's. Every manufacturer or importer of cigarettes shall file with the Commissioner, on the date or dates designated by the latter and as often as may be required, a sworn statement showing, among other information, the brand or brands of cigarettes manufactured or imported; the approved maximum retail prices per pack of said cigarettes; and whether or not the cigarettes are mechanically wrapped or packed. In the case of imported cigarettes, the sworn statement required herein shall, in addition to the above information, be accompanied by a verified commercial invoice of the manufacturer of the cigarettes as well as the consular invoices issued by the Philippine Consul, if any, containing the information that Philippine Internal Revenue strip stamps have been affixed to each and every pack of cigarettes and that such pack bears the inscription "For export to the Philippines". If the government of a foreign country permits the revenue stamps of such country to be affixed in the Philippines to tobacco (including cigars) or snuff manufactured in the Philippines and imported into such foreign country, internal revenue stamps of the Philippines may be affixed to tobacco (including cigars) or snuff manufactured in such foreign country to be imported into the Philippines from such foreign country, under such rules and regulations as the Commissioner of Internal Revenue with the approval of the Secretary of Finance may prescribe. Except those used samples, all packs of locally manufactured cigarettes shall, upon the effectivity of the new rates of tax herein prescribed, bear thereon in print the maximum retail prices at which the said cigarettes are sold. No cigarettes shall be allowed to be removed from any factory unless this requirement has been complied with. Any manufacturer who, in violation of this section, knowingly misdeclares or misrepresents in his sworn statement herein required any pertinent data or information, including the approved maximum retail prices of his locally manufactured or imported cigarettes, and the manner of packing or wrapping thereof shall upon discovery be penalized by a summary cancellation or withdrawal of his permit to engage in business as a manufacturer or importer of cigarettes. If the violator is an alien, he shall be liable for deportation. SEC. 137-A. Definitions of terms . When used herein and in statements or official forms prescribed hereunder, the following terms shall have the meaning indicated: (a) Cigars mean all rolls of tobacco or any substitutes thereof, wrapped in leaf tobacco. (b) Cigarettes mean all rolls of finely-cut leaf tobacco, or any substitute therefor, wrapped in paper or any other material. (c) Wholesale price shall mean the amount of money or price paid for cigars or cigarettes purchased for the purpose of resale, regardless of quantity. (d) Retail price shall mean the amount of money or price which an ultimate consumer or end-user pays for cigars or cigarettes purchased. SEC. 140. Specific tax on fireworks . On all fireworks there shall be collected for each kilogram a tax of thirty pesos. "Fireworks" as herein used shall include firecrackers, sparklers, rockets and similar devices which are exploded or burned to produce noises or brilliant lighting effects. SEC. 146. Specific tax on cinematographic films . There shall be collected, once only, on cinematographic films (including television films), the provisions of Republic Act Numbered 1919 to the contrary notwithstanding the following taxes: (a) On films of not more than sixteen millimeters in width, twenty-two and one-half centavos per linear meter; and (b) On films of more than sixteen millimeters in width, thirty centavos per linear meter; If the films are imported, the tax shall be increased by fifty per centum . Educational films or cinematographic films used for visual education, whether manufactured in the Philippines or imported, shall be exempt from the tax prescribed in this section. This tax shall not be collected on any tax-paid cinematographic film subsequently returned to the Philippines or on any negative film or unprinted positive film, and on any reversal film used in amateur photography of sixteen millimeters or less, and any tax heretofore paid on cinematographic films so returned, or on any negative film or unprinted positive film, or on any reversal film shall be refunded subject to the provisions of section three hundred and nine. SEC. 147. Specific tax on playing cards . This section is hereby repealed. SEC. 150. Records to be kept by manufacturers . Assessment based thereon . Manufacturers of articles subject to specific tax shall keep such records as are required by regulations recommended by the Commissioner and approved by the Secretary of Finance and such records, whether of raw materials received into the factory or of articles produced therein, shall be deemed public and official documents for all purposes. The records of raw materials kept by such manufacturers may be used as species of evidence by which to determine the amount of specific taxes due from them, and whenever the amounts of raw materials received into any factory exceeds the amount of manufactured or partially manufactured products on hand and lawfully removed from the factory, plus waste removed or destroyed, and a reasonable allowance for unavoidable loss in manufacture, the Commissioner may assess and collect the tax due on the products which should have been produced from the excess. SEC. 151-A. Manufacturers to provide themselves with counting or metering devices to determine production . Manufacturers of cigarettes, alcoholic products, oil products, and other articles subject to specific tax that can be similarly measured shall provide themselves with such necessary number of suitable counting or metering devices to determine as accurately as possible the volume, quantity or number of the articles produced by them under regulations promulgated by the Secretary of Finance upon the recommendation of the Commissioner. This requirement shall be complied with within twelve months from the date of promulgation of this decree in the case of existing firms and before commencement of operations in the case of new firms. SEC. 156. Manufacturers' and importers' bond . Manufacturers and importers of articles subject to specific tax shall give bond in an amount equal, as nearly as can be estimated, to twenty per centum of the taxes payable by them during an average year. Such bond shall be conditioned upon the faithful compliance, during the time such business is followed, with the law and regulations relating to such business and for the satisfaction of all fines and penalties imposed by this Code. No such bond shall be required in an mount less than ten thousand pesos. FEATURES OF THE AMENDMENTS Amendment to Section 128 : Exemption in favor of domestic denatured alcohol . Under the amendment to this Section, domestic denatured alcohol is now exempt from the specific tax, irrespective of the end use thereof. Before the amendment, in order that denatured alcohol may be exempt from the specific tax, it must be used for the purposes therein specified. However, said qualification has been removed and the only condition to be complied with in order that denatured alcohol may be exempted from the specific tax is that the denaturation is such that the alcohol is rendered unfit for oral intake. By express provision in the amendment, such denatured alcohol is now subject to 7% sales tax, and if used for motive power, it shall remain subject to the specific tax as provided in Section 142(d) of the Tax Code. In the light of the aforementioned amendment to Section 128, it is now clear that denatured alcohol used as raw material in the manufacture of another product is no longer subject to the specific tax. Amendments to Section 133 . Specific tax on distilled spirits : The rate of tax under, subsection (a) on locally manufactured spirits out of domestic raw materials was increased from P0.77 to P0.85 per proof liter; and the rate, if produced in a pot still and the production does not exceed 100 liters a day, is increased from P0.70 to P0.78. The tax on imported spirits as well as those locally manufactured out of imported raw materials has not, however, been increased, the tax thereon remaining at P20.00 per proof liter. An important amendment to subsection (a) is the inclusion of all locally produced materials within the purview of said subsection, no longer restricting the application of the lower rates therein imposed to distilled spirits manufactured from the local products specified in subsection (a) prior to the amendment thereof. The definition of distilled spirit was modified, the present definition being simpler and more specific. Amendment to Section 134 : Specific tax on wines . The amendment to this section consists principally of increases in tax rates on imported wines. The tax rate on imported sparkling wines, was increased from P12.00 to P15.00 per liter of volume capacity; on imported still wines containing 14% alcohol, or less, from P1.00 to P1.50; and on imported still wines containing more than 14% alcohol, from P 2.00 to P 3.00. The tax on locally manufactured wines remains the same. The exemption of locally manufactured still wines containing not more than 14% alcohol is no longer limited only to those manufactured from casuy and duhat but extended to those manufactured from all locally grown raw materials. Amendment to Section 135 . Specific tax on fermented liquors . The amendment to this section consists merely of increase in tax rates. On domestically produced fermented liquor, the tax is increased from P0.27-1/2 to P0.32-1/2 on each liter of volume capacity. The amendment also established a new tax rate on imported fermented liquor, which is double that of locally manufactured fermented liquor. Before the Amendment, locally manufactured and imported fermented liquors were subjected to the same rate of tax. Amendment to Section 136 : Specific tax on products of tobacco . The amendment to this section consists of (1) the inclusion of stems as among the products of tobacco subject to the tax prescribed therein; and (2) the insertion of the proviso which allows the disposition of said tobacco products without prepayment of the tax, if they are to be exported or used in the manufacture of other tobacco products. Amendment to Section 137 : Specific tax on cigars and cigarettes . There are no amendments to subsection (a) which prescribes the tax due on cigarettes. Subsection (b), however, has undergone quite a change. Cigarettes are no longer classified on the basis of the kind or type of tobacco used in their manufacture. They are now classified on the basis of their retail price, the number of cigarettes in a pack and whether or not they are mechanically wrapped or packed. The provision increasing the tax by 120% if the locally manufactured cigarettes are mechanically wrapped or packed has been retained. Under the amendment, cigarettes of foreign manufacture are classified under Item 7, subsection (b) but the tax thereon is increased by 120% as provided for in the law prior to the amendment. The amendment also prohibits the downward classification of cigarettes, once a classification had already been established for such cigarettes. The maximum retail price of existing brands of cigarettes as of March 1, 1973 shall be the basis in determining their classification under the amendment. Under the amendment, existing brands of cigarettes packed in twenties are not allowed to be packed in 30's and new brands of cigarettes shall not be allowed to be registered or manufactured if they are to be packed in 30's. The provision relating to the filing of a sworn statement by every manufacturer or importer of cigarettes was amended to conform with the new classification bases. The penal provision of this section for misdeclaration or misrepresentation was repealed and in lieu thereof, an administrative penalty consisting of summary cancellation or withdrawal of permit is imposed, and if the violator is an alien, he shall be liable for deportation. In consonance with the new classification bases, the amendment requires that the maximum retail price for which the cigarettes are sold must be printed on the packages thereof. New Section 137-A . This new section provides the definition of certain terms affecting the tobacco industry. The definitions are self-explanatory. Amendment to Section 140 : Specific tax on fireworks . This section which previously covered the subject of fire-crackers was amended by changing the subject thereof to fireworks and including firecrackers within the purview of the term "fireworks". The amendment also increased the rate of tax from P20.00 to P30.00 per kilogram. Amendment to Section, 146 : Specific tax on cinematographic films . The exemption of films of not more than sixteen millimeters in width was repealed. For tax rate purposes, films are now classified into films of not more than 16 mm. in width and films of more than 16 mm. in width. The tax on films under the first category was increased from P0.15 to P0.22-1/2 per linear meter; and on films under the second category, from P0.20 to P0.30. The amendment also included within the coverage of the section television films, the provisions of R.A. No. 1919 to the contrary notwithstanding. Television films are, therefore, now subject to specific tax. The amendment furthermore increased the tax on imported films. The tax on said films, which were before subject to the same rate as locally manufactured ones was increased by 50% of the rate of tax imposable on the latter. Amendment to Section 147 : Specific tax on playing cards . This section was repealed. Playing cards previously taxed under this section are now subject to the sales tax prescribed by subsection (c), Section 184, which was also correspondingly amended by Presidential Decree No. 69. Amendment to Section 150 : Records to be kept by manufacturers . There is no change in the substance of this section. Its provisions were merely restructured for clarity. New Section 151-A : Manufacturers to provide themselves with counting or metering devices to determine production . This new section requires manufacturers of cigarettes, alcohol products, oil products and other articles subject to specific tax that can be similarly measured, to provide themselves with such necessary number of suitable counting or metering devices in order to determine as accurately as possible the volume, quantity or number of articles produced by them. Existing firms should comply with the said requirements within twelve (12) months from January 1, 1973; while new firms shall comply therewith before commencement of their operation. Amendment to Section 156 : Manufacturers' and importers' bond . Under the amendment, the bond to be given by manufacturers and importers of articles subject to the specific tax must be in an amount equal to 20% of the taxes payable during an average year. The law no longer limits the maximum-amount of such bond to P50,000.00. The amendment, moreover, increased the minimum amount of such bond from P1,000.00 to P10,000.00. EFFECTIVITY Except for the amendment to Section 137, which takes effect on March 1, 1973 pursuant to Presidential Decree No. 88, all of the amendments to Title IV of the National Internal Revenue Code take effect on January 1, 1973. ENFORCEMENT All internal revenue officers and others concerned are enjoined to be guided accordingly to give this Circular as wide a publicity as possible. aisa dc MISAEL P. VERA Commissioner of Internal Revenue APPROVED: CESAR VIRATA Secretary of Finance