Publishing Executive Order No. 872 Limiting the Tax Credit to Taxes Actually Paid in Computing Sales Tax on Manufactured Articles

February 18, 1983 REVENUE MEMORANDUM CIRCULAR NO. 07-83 SUBJECT : Publishing Executive Order No. 872 Limiting the Tax Credit to Taxes Actually Paid in Computing Sales Tax on Manufactured Articles TO : All Internal Revenue Officers and Others Concerned For the information and guidance of all concerned, published hereunder is the full text of Executive Order No. 872: EXECUTIVE ORDER NO. 872 LIMITING THE TAX CREDIT TO TAXES ACTUALLY PAID IN COMPUTING SALES TAX ON MANUFACTURED ARTICLES. "WHEREAS, under present law, taxes on tax-exempt articles which are used as raw materials in the manufacture of finished products are allowed as tax credit against sales taxes, although no taxes are actually paid on such tax-exempt articles; cd "WHEREAS, such concession results in substantial erosion of tax base considering that a tax credit is granted on the basis merely of an assumed payment; "WHEREAS, there is need to rationalize this incentive in accordance with the mandate of Presidential Decree No. 1816; "NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines, pursuant to the powers vested in me under Section 1 of Presidential Decree No. 1816; do hereby direct and order: "Sec. 1. The pertinent provisions in Sections 194, 195, 196, 197, 199 and 201 of the National Internal Revenue Code, as amended, to the effect that the tax otherwise due on any raw material, part or accessory or other article which is exempt from tax shall be deemed to have been paid for the purpose of computing the sales tax due, are hereby repealed. "Sec. 2. Section 200 of the National Internal Revenue Code, as amended, is hereby further amended to read as follows: 'Sec. 200. Tax on tax-exempt products of pioneer enterprises registered with the Board of Investments deemed paid . Whenever a tax-exempt product of a pioneer enterprise registered with the Board of Investments is used in the manufacture or production of any article sold domestically, the sales or specific taxes otherwise due on such tax exempt product shall be credited against the sales tax due on the manufactured article.' cdt "Sec. 3. The Minister of Finance, upon recommendation of the Commissioner of the Bureau of Internal Revenue, shall promulgate the necessary rules and regulations for the implementation of this Executive Order. "Sec. 4. This Executive Order shall take effect April 1, 1983. "Done in the City of Manila, this 16th day of February in the year of Our Lord, Nineteen Hundred and Eighty-Three. (Sgd.) FERDINAND E. MARCOS President of the Philippines By the President: (Sgd.) JUAN C. TUVERA Presidential Executive Assistant" Salient Features of Executive Order No. 872 1. The "tax-deemed-paid" treatment given to tax-exempt raw material, part, accessory or other article used in the manufacture of a finished product subject to sales tax under Sections 194, 195, 196, 197, 199 and 201 of the Tax Code, as amended, is, as a general rule, no longer available to the manufacturer for purposes of tax credit against the sales tax due on the finished product. 2. Section 200 of the Tax Code, as amended, limits the application of the tax-deemed-paid treatment to the tax-exempt product of a pioneer enterprise registered with the Board of Investments used in the manufacture or production of any article sold domestically, so that only the sales or specific taxes otherwise due on such tax-exempt product shall be allowed as credit against the sales tax due on the finished article. aisa dc 3. The Executive Order takes effect on April 1, 1983. All internal revenue officials, employees and others concerned are hereby enjoined to give this Revenue Memorandum Circular the widest publicity possible. (SGD.) RUBEN B. ANCHETA Acting Commissioner