Guidelines on Stocktaking/Investigation of Taxpayers Producing Articles Subject to Specific Tax and of Wholesale Leaf Tobacco Dealers

June 1, 1984 REVENUE MEMORANDUM ORDER NO. 16-84 SUBJECT : Guidelines on Stocktaking/Investigation of Taxpayers Producing Articles Subject to Specific Tax and of Wholesale Leaf Tobacco Dealers TO : All Internal Revenue Officers Concerned BACKGROUND: It has been noted that existing procedures employed by revenue officers authorized to conduct stocktaking/investigation involving specific tax and inspection fee are found to be ineffective resulting in a very poor yield in terms of assessment and/or collection. This may be attributed mainly to the lack of established guidelines or procedures in conducting said stocktaking/investigation. OBJECTIVES: The following guidelines therefore are hereby prescribed bearing on the conduct of stocktaking/investigation of taxpayers producing articles subject to specific tax and wholesale leaf tobacco dealers to attain the following objectives: 1. To provide for a comprehensive, thorough and effective manner of conducting stocktaking/investigation; 2. To provide for a uniform reporting requirements and formats to ensure that all available data that may be used as inputs in income and other internal revenue tax investigations are reflected thereat; 3. To enhance the effectiveness of stocktaking/investigation to produce substantial results therefrom in terms of assessment and/or collection. GUIDELINES AND PROCEDURES: The guidelines and procedures are embodied in the following Annexes: 1. Annex "A" guidelines in the conduct of stocktaking and investigation on manufactured tobacco products; 2. Annex "B" guidelines in the conduct of stocktaking/investigation on alcoholic products; 3. Annex "C" guidelines in the conduct of stocktaking/investigation on petroleum products; and 4. Annex "D" guidelines in the conduct of stocktaking/investigation on leaf tobacco. The Chiefs of Assessment Branches of the Revenue Regions are hereby enjoined to furnish the Revenue Service Chief (Specific Tax) whenever requested by the latter a copy of the Annual Inventory of Stocks filed by taxpayers pursuant to the pertinent provisions of the Bookkeeping Regulations. The revenue inspectors authorized to conduct the stocktaking/investigation are hereby enjoined to adhere strictly to the prescribed procedures and guidelines herein. All orders, circulars and issuances which are inconsistent with the provisions of this Order are hereby revoked or amended. This Order takes effect immediately. (SGD.) RUBEN B. ANCHETA Acting Commissioner ANNEX A GUIDELINES ON STOCKTAKING/INVESTIGATION TOBACCO TAX DIVISION I. ISSUANCE OF THE LETTER OF AUTHORITY. II. SERVICE OF THE LETTER OF AUTHORITY TO THE TAXPAYER. III. THE STOCKTAKING PROPER . A. The Updating of All Accounts of the Official Register Book . After service of the authority, request the factory owner, manager or any duly authorized representative of the factory to present the following: 1) L-71/2 and L-7 official register books and the corresponding official invoice books for both; 2) Cigarette paper in Bobbins official register book; 3) Revenue Tax Receipt for the payment of annual fixed tax; 4) Official register books for finished tobacco products A-5, A-4 and A-3 and the corresponding stamps requisition books for each type of tobacco product; 5) Official register book for imported materials used in the manufacture or preparation of tobacco products as required under Rev. Regs. 6-65 of the Ministry of Finance; 6) Copy of the List of Inventories (annual) submitted to the BIR as required by the Bookkeeping Regulations; 7) Sales invoices; and 8) Such other records and documents that may be needed in the verification and review of the past transaction of the factory during the inclusive period under investigation. The official invoice books and sales invoice pads upon being presented shall be closed immediately before proceeding with the updating of all debit and credit entries in the official registers. Close the official invoice book by indicating the time, the date, and the authority at the back thereof of the stub of the official invoice issued for the last removal or transfer of tobacco raw materials. Take note of the serial number, date of transfer, quantity of raw materials transferred, and to whom or where it was transferred. Check and verify if the correct credit entries had been made for the same in the corresponding official register book. a) Determination of the cut-off period . 1) If the inventory taking is begun before the start of the business operations on any given day, the books shall be updated as of the close of business operations of the previous day; 2) If the stocktaking group or team arrives in the factory on any given day when business operations is already in progress, to obtain a fairly accurate inventory taking, it would be best to wait till after the business operations had stopped for the day, the books may then be updated as of the close of business on that day; and 3) If the factory is on 24 hours daily operation, it is recommended that suspension of operations be requested of the factory management to facilitate easy accounting of the stocks on hand, the books may then be updated as in any of the two preceding methods mentioned hereinabove. b) Updating and Closure of the different accounts in the official register books . 1) Check and verify all retained official gains, L-71/2 and L-7 official invoices, and all other supporting or covering documents to see if these have been recorded in the different corresponding accounts of the official registers; 2) Allow the factory management to record all covering or supporting documents that are found still unrecorded up to the pre-determined cut-off period; 3) Determine whether any violation had been committed with regards to the time limit accorded for recording business transactions under the Bookkeeping Regulations; and 4) After updating, close all accounts in the different official register books. B. The Actual Taking of Stocks or Inventories on Hand . IMPORTANT: When stocktaking is conducted before the start of the business operations on any given day, the first items or materials that must be weighed are the nut tobacco or hebra , in sufficient quantities, to be fed to the cigarette making machines, in order not to delay unnecessarily the start of the factory's operations for the day. Cigarette paper in bobbins too, must be issued immediately for this same reason and purpose. The different accounts in the different official register books, the different forms of stocks, and the different types or kinds of stocks that are found under each account; and, the manner and/or how these stocks or materials shall be accounted for are given hereunder: a) L-71/2 Tobacco raw materials account (Warehouse). 1) Whole Leaf Tobacco in Bales: 1. Group according to the type of leaf tobacco content and according to standard weight in kilos per bale; and, 2. Count the number of bales and multiply by the standard weight. 2) Leaf Tobacco in Hogsheads, in Cases, and in Casks: 1. Group according to type of leaf tobacco content; and, 2. Count number of hogsheads, cases and casks. List net weights as indicated on individual containers. 3) Loose Leaves of Tobacco: Occasionally loose leaves of tobacco may be found under this account which tobacco may have been rejected from the L-7 and must be rebaled before the same could be sold to any tobacco dealer or manufacturer. 1. Weigh all loose leaves to get the total net weight in kilos; and, 2. Check and verify if the total net weight of the loose leaves tally with the credit entry for the said quantity of leaf tobacco in the official register L-7. b) L-7 Tobacco raw materials account (Factory proper) . All tobacco raw materials under this account are taken up at net weight in kilos. 1) Bales: 1. Group according to type of tobacco; and, 2. Weigh all bales to get total net weight in kilos. 2) Hogsheads, cases and casks (If still unopened) 1. List the net weights in kilos individually as indicated in each containers. If net weights are in pounds convert into equivalent kilos. (This is true only of imported leaf tobacco); 2. Grouping shall be by the type and form of tobacco content and by the kind of container; 3. If containers are already opened, group according to the preceding method; and, 4. Weigh, discount container weight to get total net weight in kilos. 3) Partially manufactured tobacco products: (a) cut tobacco or hebra, scraps, cuttings, cigar clippings, sweepings, stems, fine cut shorts, tobacco powder or tobacco dust, etc.,: 1. Group according to the form of tobacco and if possible according to the type of tobacco; and, 2. Weigh to get net weight in kilos. (b) Loose cigarettes or in packs w/o stamps, loose cigars or in packs w/o stamps, packed smoking tobacco and packed chewing tobacco, all of which have not yet been transferred and takes up in the corresponding A-schedule accounts: Cigarettes: 1. Group according to the brand; and 2. Net weight of hebra content is determined on the basis of the number of cigarettes per kilo as declared and approved for each brand. Cigars: 1. The same method as in the preceding for cigarettes may be applied with regards to cigars. Smoking Tobacco: 1. Group according to brand and the indicated net weight per package; and, 2. Multiply total number of packages by the indicated net weights per package. Chewing Tobacco: 1. Group according to brand and the indicated weight per pack; and, 2. Discount the amount of moisture per pack in accordance with the declared and approved percentage of moisture content for each product brand. Multiply the resultant net weights by the total number of packs of each brand. c) Cigarette paper in bobbins accounted for in total meters. 1) Whole bobbins: 1. Group according to color, brand, width and length; and 2. Count and convert to equivalent meters. 2) Partial bobbins: 1. Group according to color, brand, width and length; and * 2. Weigh, discount weight of bobbin core and convert to equivalent meters. 3) Loose cigarettes and/or packed cigarettes not yet taken up in the A-5 official register: 1. Group according to brand of cigarettes, color of cigarette paper used, and the length of the cigarettes in millimeters; and, 2. Multiply total cigarettes of each group by the length of the cigarettes in millimeters. 4) Waste cigarette paper (Intact and preserved): 1. Weight and convert into equivalent meters on the basis given herein below: ( * ) Black cigarette paper one (1) kilo equals 1,000 meters. White cigarette paper one (1) kilo equals 1,600 meters. d) Imported materials account . Imported materials other than leaf tobacco and cigarette paper. Some of the imported raw materials, most likely, to be found under this account are the following: Liquid tobacco flavoring, dry tobacco flavoring, tipping paper, filter tipping or filter rods, wrapping and cellophane sheets, machinery and machinery spare parts, and such other imported materials contemplated under Rev. Reg. No. 6-65 of the Ministry of Finance. All spoilage or wastage must be preserved. e) A-5 account (Finished products) cigarettes and BIR strip stamps . Accounting for stock on hand may be done on the basis given below: Cigarettes packed in 20's : 1) A pack contain 20 cigarettes; 2) A carton contain 10 packs or 200 cigarettes; and, 3) A case contain 50 cartons or 10,000 cigarettes. Cigarettes packed in 30's : 1) A pack contain 30 cigarettes; 2) A roll contain 25 packs or 750 cigarettes; and, 3) A case contain 20 rolls or 15,000 cigarettes. Cigarette packed in 20's or 30's are affixed with a strip stamp to a pack each. Unaffixed BIR strip stamps are under the joint custody of the factory cashier and the internal revenue officer assigned to the establishment. f) A-4 account (Finished products) cigars and BIR strip stamps . Accounting for cigars may be done on the basis given below: 1) A box may contain 10, 20, 25, 50, 100, 250 and 500 cigars to the box of the P2.30 per thousand class; and, 2) A box may contain 10, 20, 25, 50, and 100 cigars to the box of both the P4.60 and P7.00 per thousand classes of cigars. Each cigar box is affixed with a strip stamp each. Unaffixed strip stamps are under the joint custody of the factory cashier and the internal revenue officer assigned to the establishment. g) A-3 account (Finished products) smoking tobacco and chewing tobacco, BIR strip stamps . As in the case of cigars and cigarettes, the standard packages for smoking tobacco and chewing tobacco are given below: 1) Smoking tobacco are packed in 50, 100, 125, 250, 450 and 500 grams to the package; and, 2) Chewing tobacco are packed in 50, 100, 250, 500 and 700 grams to the package. BIR strip stamps for smoking tobacco and chewing tobacco are affixed one each to a package. Unaffixed strip stamps are under the joint custody of the factory cashier and the internal revenue officer assigned to the establishment. Note: Export and tax-free stamps may also be found under the A-5; A-4; and A-3 accounts. A factory representative must be present in the actual counting, weighing, measuring and rising, and in the listing of the quantities and the descriptions of the items of stocks obtained in the inventory taking. He must be duly authorized to sign the inventory or tally sheets in attestation to the correctness of the stocks as counted and recorded therein. C. Accomplishment of the Certificate of Stock . After the physical inventory, prepare a certificate of stock from all the data gathered and listed in the tally or inventory sheets used during the inventory taking. All stocks properly classified and summarized shall show the total for each account. The authority to conduct the stocktaking, the date of the authority, and the period covered by the authority shall be mentioned in the certificate. All internal revenue officer-members of the stocktaking group responsible for the preparation of the inventory, as well as, the owner/manager or a duly authorized representative of the factory shall sign the certificate of stock. D. Verification of PTR Payments; and , E. Verification and Review of Past Transactions During the Period Covered by the Authority . Simultaneously with the actual inventory taking some members of the stocktaking group, designated beforehand, shall go over the official register books and other pertinent records of the factory to verify all debit and credit entries made of the past transactions within the period covered by the investigation. IV. PREPARATION OF THE WORKING PAPERS OR WORKSHEETS . A worksheet shall be prepared for each of the accounts mentioned under section B of this guidelines. The name of the establishment; the schedule, paragraph and assessment number; and the authority number, the date of the authority and the period covered by the authority shall be indicated therein. The main body of the worksheet shall contain all transactions composing the total debits section on the left hand side and all transactions composing the total credits section on the right hand side. Included in the main body but as a separate section thereof is the resume or reconciliation section where the book inventory (stock book balances) is compared and brought into agreement with the physical inventory. The main body of the worksheet is shown below: Debits: Credit: Beg. Bal. Actual stock as of last : All transfers, removals and sales stocktaking. : beginning with the first day following ADD: All receipts from the first day : the cut-off date of the last stocktaking immediately following the cut-off : to the cut-off period or date date of the last stocktaking to : of the current stocktaking. the cut-off date of the current : stocktaking. : ________________________________ : _____________________ TOTAL AVAILABLE (Dr. : TOTAL CREDITS (Cr.) ________________________________ : ____________________ R E S U M E Beg. Bal. Actual Stock as of last Stocktaking. ADD: Total Receipts (Dr.) Equals - TOTAL AVAILABLE LESS: TOTAL CREDITS Book inventory as of current stocktaking. Physical inventory DISCREPANCY: Overage (Shortage) Causes of material differences, overage or shortage, between the physical and the back inventories may be found through the following: 1) Check and verify footings and extensions in the official registers to make sure that no errors had been committed; 2) Check and verify entries in the raw materials registers against the receiving report for each and every shipment; 3) Check and verify rejected raw materials; raw materials returned to suppliers; and, raw materials sold or transferred to others; 4) Check and verify, particularly, transfers of raw materials between sister companies and transfers between warehouses (1-71/2) of the same factory; and 5) Check and verify returned merchandise against receiving reports. When all the documents and records have been verified and all data gathered have been evaluated a report on the result of the stocktaking and investigation shall be prepared. V. PREPARATION AND SUBMISSION OF THE REPORT . The report shall contain a summary of all the facts and findings of the cases together with the recommendations. The report shall show the resume section taken from the worksheet and which point out any discrepancy between the physical and book inventory for each account. The computation for any assessable overage or shortage and any adjustments made to reflect the correct book balances in the different accounts of the official register books shall also, be indicated in the report. VI. PREPARATION AND ISSUANCE OF THE LETTER OF DEMAND . A letter of demand for the collection of deficiency specific tax on the overage or shortage discovered in the stocktaking and investigation shall be prepared. The basis of the assessment and the computation of the amount demanded shall be indicated. The overage or shortage established during the stocktaking and investigation shall be considered in the final computation of the income tax liability of the establishment taxpayer. Republic of the Philippines Ministry of Finance BUREAU OF INTERNAL REVENUE Quezon City REPORT OF STOCKTAKING/INVESTIGATION Name of Taxpayer : ____________________ Business Style: _________________ Address : ___________________________ Date Reported: _________________ Authority No : ___________ Date: ________ Issued By: ____________________ Period Covered : _________________________________________________________ Kind of Business : ________________________________________________________ Total Amount Reported: P __________________________ Consisting of: a) Specific Tax P ___________ b) Inspection Fee P ___________ c) Advance Sales Tax P ___________ d) Privilege Tax P ___________ e) Surcharge P ___________ f) Compromise P ___________ Total P ========== Nature of violation or discrepancy : ________________________________________________________ _________________________________________________________ _________________________________________________________ _________________________________________________________ Is the taxpayer agreeable to the findings? ___________________________ The undersigned Internal Revenue Officers hereby recommend the approval of this report, together with the recommendations stated herein. ______________________ ______________________ ______________________ ______________________ CONCURRED IN: ______________________ Manager/Owner APPROVED: ______________________ Republic of the Philippines Ministry of Finance BUREAU OF INTERNAL REVENUE Quezon City STOCKTAKING REPORT ___________________________ Period Covered Taxpayer: ____________________ Date: _________________________________ Address: ____________________ Authority No. ______ Issued by: _______ Kind of Business _______________ Date of Authority: _______________________ ________________________________________________________ : : : : : : : : : Total stock as of last : : : : : : : : : Stocktaking : : : : : : : : : ADD: Total purchases and/or : : : : : : : : : receipts (OR) : : : : : : : : : : : : : : : : : : TOTAL AVAILABLE : : : : : : : : : : : : : : : : : : LESS: Removals, Transfers : : : : : : : : : & Sales : : : : : : : : : : TOTAL CREDITS : : : : : : : : : : : : : : : : : : Book of Inventory as of : : : : : : : : : Physical Inventory : : : : : : : : : DISCREPANCY: : : : : : : : : : Overage/Shortage. : : : : : : : : : REMARKS: ________________________________________________ ________________________________________________ We hereby certify to the correctness of the above. _________________________ _________________________ _________________________ _________________________ ATTESTED & VERIFIED CORRECT: _______________________ ANNEX B Guidelines on the conduct of stocktaking and investigation taxpayers producing or handling alcohol and/or alcoholic products. I. STOCKTAKING . Immediately after serving the letter of authority to subject taxpayer, the following should be undertaken: 1. Updating of records . Before closing the official register books and the gauger's books, the taxpayer or his bookkeeper and the revenue officer assigned in the establishment must be required to update the entries in the respective books and other factory records (see attached list) kept by them to include all transactions up to the last day covered by the stocktaking, or cut-off period may be determined as follows: a. If stocktaking is conducted before the start of the day's operations, the books must be updated as of the close of business of the previous operations day; b. If stocktaking is conducted after the close of the day's operations, the books must be updated as the close of business operations on that day; and c. If stocktaking is conducted at a time when business operations for the day have started, the books must be updated as of the close of business operations of the previous day. All movements of articles since the start of operations on that day must be "worked back" to establish the correct balances of all accounts as of the close of business of the previous day. 2. Taking of Actual Stock on Hand . Take inventory of actual stock on hand of all accounts in the company in the presence of the taxpayer or his duly authorized representative. Consider necessary adjustments to be made on raw materials received, used or in process, or manufactured or partially manufactured goods removed, to establish correct balances of all accounts as of cut-off period. Actual stock on hand may be arrived at by using any or a combination of the following methods available under the circumstances: a. by physical count; b. by gauge glass reading; c. by standard capacities of containers: 1. drums @ 200 gauge liter each; 2. dexijohns @ 15 gauge liter each; 3. kerosene can @ 19.5 g.1. each; and 4. barrels at approved contents permanently marked thereon, etc. d. by "sounding" e. by grading the spirits or by taking representative samples for laboratory analysis. 3. Stock Certificate . After the actual stocks on hand of all accounts have been taken, prepare a stock certificate, signed by the stocktakers, the revenue officer assigned in the establishment and by the owner, manager or his duly authorized representative to acknowledge correctness of the data contained therein. II. VERIFICATION 1. Verify privilege tax payments for current and prior years covered by the authority. Verify also sufficiency of bonds and other requirements. 2. Verify past transactions a. Verify entries in the official register books for past transactions covered by the period under investigation. Review or examine the basic documents which support such entries, such as official tax receipts, composition slips, daily reports of operations, monthly reports, special permits and other source documents. Verify also footings to ascertain that no clerical error may have been committed that may have altered the ending book balances found. b. Cross-check entries in the ORB's against OTR's, purchase invoices, sales invoices and other records to ascertain that all transactions bearing on the manufacture, sale or transfer of article subject to specific tax are correctly reflected in the official register books. c. Make reference to the inventory of raw materials and finished goods submitted by the taxpayer together with the income tax return as required by bookkeeping regulations. III. PREPARATION OF THE WORKSHEET After verifying entries in the ORB's and other factory records for past transactions covered by the authority, all data ascertained may now be collated and the worksheets prepared. The worksheets must show the following: 1. Heading The name of the establishment The schedule, paragraph and Assessment number The date of the current stocktaking and on the right hand top corner, the date of the previous stocktaking. 2. The Body The body of the worksheet contains the following: a. Book balance section, which shows: Balance beginning - of the current month Add: Receipts (DR) - From 1st day of current month to cut-off date. Equals: Total Handled - Beg. Bal. + Receipts Less: Removals (CR) - From 1st day of current month to cut-off date Equals: O.B.B. - Official Book Balance b. Stock handled section Bal. Beg. - S.O.H. per previous S/T Add: Receipts (DR) - 1. from day after the date of last stocktaking to end of month. 2. All the full months covered y S/T 3. from 1st day of current month to cut-off date. Equals: Total Stock Handled Less: Removals (CR) - 1. from day after the date of the last S/T to the end of the month. 2. All the full months of the /T coverage 3. From 1st day of current month to cut-off period. Equals: Official Bank Balance. - This should tally with the OBB of the book Balance section and the dauger's book balance 6. Actual Stock Section showing: Gauger's Book Balances Actual Stock Loss & Gain Gauger's book balances for Stock on hand found Actual loss or gain each storage tank or on each storage tank found per stocktaking tank container showing or container showing shown in g.l. grade and p.l. g.l., grade & p.l. p.l. and p.l. The gauger's book balance, and the stock on hand, taking into account the loss and gain per stocktaking should reconcile or tally with the official book balances established in the Book Balance Section and the Stock Handled Section. d) Breakdown of Sales This section shows in detail the credit portion of the Stock Handled Section of the worksheet. Monthly removals are reflected by indicating the number and kind of containers and their capacities, the number of cases, number of bottles per case, content of each bottle, the quantity in gauge liter per case, and the total quantity of the articles removed. These are reconciled with the number of units of auxiliary and regular labels using during the period, together with their inclusive serial numbers. e) Percentage of loss . The loss or gain is the difference between the gauger's book balances of each individual storage tank and the actual stock found therein per physical inventory. The percentage of loss is extracted to determine whether the shortage is within the reglementary allowable loss, or it is or portion thereof is subject to specific tax. 3. The Signatures The names of the revenue officers conducting the stocktaking and investigation should be printed or typed on the worksheet and their respective signatures affixed. IV. INDEX AND DELINQUENCY RECORD Upon completion of the worksheets, the Index and Delinquency Record must be accomplished. It is a record of delinquency cases and instructions or warnings given the taxpayer. It shows the name of the establishment, schedule, paragraph and assessment number. Entries therein shall be made by the stocktakers. Every entry shall be dated and signed by the stocktakers and by the owner or manager of the establishment. Each such entry shall contain the following information. If a delinquency case, a brief statement of the offense committed; and in the case of instructions or warnings, a brief statement of the subject and substance thereof. A brief statement of the results of stocktaking or a summary of all the accounts shall also be entered in this record. V. SUBMISSION OF THE REPORT After all documents have been evaluated, data collated worksheets and index and delinquency record completed, a report on the result of stocktaking and investigation must be submitted. The report contains a summary of facts and findings. It shows among other things the different account titles, the stock handled for each account, the loss or gain, if any, and the percentage thereof, together with the recommendation. VI. PREPARATION AND ISSUANCE OF DEMAND LETTERS . When necessary, a letter of demand for the collection of deficiency specific tax, plus surcharge should be prepared and issued. It should state among others, the basis of the assessment and the computation of the amount demanded. NOTE: Whenever there are two or more members of the stocktaking team it is suggested that the actual taking of inventory and the preparation of the worksheets be done simultaneously. Republic of the Philippines Ministry of Finance BUREAU OF INTERNAL REVENUE Quezon City REPORT OF INVESTIGATION Name of Taxpayer : _______________ ____ ________ Business Style: _________ Address : ___________________________ Date Reported: _________ Authority No. : _______ Date: _______________ Issued By: _____________ Period Covered : ______________________________________________________ Kind of Business : ______________________________________________________ Total Amount Reported : ..................................................... _______________________ Consisting Of: (a) Specific Tax __________________ (b) Privilege Tax __________________ (c) Surcharge Tax __________________ (d) Compromise __________________ Total ================ Nature of violation or discrepancy: ___________________________ ___________________________ ___________________________ ___________________________ ___________________________ Is the taxpayer agreeable to the findings? ________________________ I/WE hereby recommend the approval of this report, together with the recommendations stated herein. ________________________ ___________________________ ________________________ ___________________________ RECOMMENDING APPROVAL: ___________________________ CONCURRED IN: ___________________________ APPROVED: ___________________________ List of BIR Forms and records for use of the respective Establishments manufacturing or dealing in Alcohol and other alcohol products 1. Alcohol Plants BIR Form No. 2.01 Raw Material Account (By kind of material) " " " 2.02 Raw Material Account (By distillery) " " " 2.03 Raw Material Account (By month) " " " 2.05 Summary of Daily Operations Fermentation Accounts " " " 2.11 Official Register Book-Crude Spirits " " " 2.12 Transcript Sheet Crude Spirits " " " 2.14 Official Register Book-Rectified Spirits " " " 2.15 Transcript Sheet Rectified Spirits " " " 2.07 Official Tax Receipt " " " 2.20 Official Register Book Sales Account " " " 2.21 Transcript Sheet Sales Account " " " 2.27 Report of Shipment Under Bond " " " 2.34 Gauger's Monthly Record of Official Labels " " " 2.51 Comparative Statement of Specific Taxes Index and Delinquence Record Gauger's Auxiliary Records Monthly Inventory Official Register Books for Bonded Distillery Warehouse 2. Small Distilleries BIR Form No. 2.01 Raw Material Account (By kind of material) " " " 2.02 Raw Material Account (By distillery) " " " 2.03 Raw Material Account (By month) " " " 2.29 Daily Statement of Tuba Received in the Distillery " " " 2.05 Summary of Daily Operations " " " 2.08 Official Register Book-Distilled Spirits Single Account Transcript Sheet " " " 2.07 Official Tax Receipt " " " 2.34 Gauger's Monthly Record of Official Labels " " " 2.51 Gauger's Auxiliary Records Index and Delinquence Record Comparative Statement of Specific Taxes Monthly Inventory 3. Rectifier BIR Form No. 2.05 Summary of Daily Operations " " " 2.11 Official Register Book-Crude Spirits " " " 2.12 Transcript Sheet Crude Spirits " " " 2.14 Official Register Book-Rectified Spirits " " " 2.15 Transcript Sheet Rectified Spirits " " " 2.07 Official Tax Receipt " " " 2.20 Official Register Book Sales Account " " " 2.21 Transcript Sheet Sales Account " " " 2.34 Gauger's Monthly Record of Official Labels " " " 2.51 Comparative Statement of Specific Taxes Index and Delinquency Record Gauger's Auxiliary Records Monthly Inventory 4. Denaturer BIR Form No. 2.05 Summary of Daily Operations " " " 2.41 Official Register Book for Denatured Alc. Transcript Sheet for Denatured Alcohol " " " 2.34 Gauger's Monthly Record of Official Labels " " " 2.07 Official Tax Receipt Index and Delinquency Record Gauger's Auxiliary Records Monthly Inventory Official Register Books for Bonded Denaturing Warehouse 5. Compounder BIR Form No. 2.05 Summary of Daily Operations " " " 2.07 Official Tax Receipt " " " 2.17 Official Register Book Compound Liquor " " " 2.18 Transcript Sheet Compound Liquor " " " 2.20 Official Register Book Compound Sales Account (plus supplement of sales account) " " " 2.21 Transcript Sheet Compound Liquor Sales Account " " " 2.34 Gauger's Monthly Record of Official Labels Index and Delinquency Record Gauger's Auxiliary Records Monthly Inventory 6. Repacker (Distilled Spirits and Wines) BIR Form No. 2.05 Summary of Daily Operations " " " 2.07 Official Tax Receipts " " " 2.35 Official Register Book-Repacker of Distilled Spirits and Wines " " " 2.37 Transcript Sheet Repacker of Distilled Spirits and Wines " " " 2.34 Gauger's Monthly Record of Official Labels Index and Delinquency Record Gauger's Auxiliary Records Monthly Inventory 7. Repacker (Denatured Alcohol) BIR Form No. 2.05 Summary of Daily Operations " " " 2.07 Official Tax Receipt " " " 2.35 Official Register Book Repacker Denatured Alcohol " " " Transcript Sheet Repacker Denatured Alcohol " " " 2.34 Gauger's Monthly Record of Official Labels Index and Delinquency Record Gauger's Records Monthly Inventory 8. Breweries BIR Form No. 2.01 Raw Material Account (By kind of material) " " " 2.03 Raw Material Account (by month) " " " 2.05 Summary of Daily Operations Official Register Book Fermented Liquor Transcript Sheet Fermented Liquor " " " 2.51 Comparative Statement of Specific Taxes Index and Delinquence Record Gauger's Records Republic of the Philippines Ministry of Finance BUREAU OF INTERNAL REVENUE Quezon City ___________________________ (Date) The Commissioner of Internal Revenue Diliman, Quezon City Thru Channels S i r : I/WE have the honor to submit the following stock-taking report of __________________________________, known as ______________ covering the period from ___________________________ to _____________ taken on ___________________________ . : Stock Handled : : : ACCOUNT : Since Last Report : Shortage : Overage : ------------------------- : Percent : G.L. : P.L. : G.L. : P.L. : G.L. : P.L. : -------------------------------- : : : : : : : -------------------------------- : : : : : : : -------------------------------- : : : : : : : -------------------------------- : : : : : : : -------------------------------- : : : : : : : -------------------------------- : : : : : : : -------------------------------- : : : : : : : -------------------------------- : : : : : : : -------------------------------- Date of last stock-taking: _______________________ RECOMMENDATIONS: _______________________ _________________________ ANNEX C For : THE REVENUE SERVICE CHIEF (SPECIFIC TAX OFFICE) Subject : STOCKTAKING & INVESTIGATION TECHNIQUE (Petroleum Products) Procedure : I. Secure a Letter of Authority (LA) II. Service of the Letter of Authority III. Stocktaking Proper Step 1. Closure of the Official Register Books (ORB) reckoned on the cut-off date prescribed in the LA; ORBs are provided for finished articles (refined), intermediate or in-process products, base stocks and raw materials. Require the company to furnish a copy of the annual stock inventory report submitted to the BIR as required under the bookkeeping regulations. (Stocktaking should be conducted only on products required and specified in the LA; generally it is conducted on bonded petroleum products.) Step 2. S tock Inventory Per Record. Determine the beginning stocks as of the start of the operations of the company as shown in the beginning entry on the date the ORBs were installed; if it is already a going concern, the inventory of stock as shown in the certificate of inventory of the last stocktaking conducted. From the beginning entry or the last stocktaking up to the cut-off date add all entries in the debit side (productions/ receipts) and add all the entries in the credit side withdrawals/removals/transfers and losses) and then strike a balance of the sum or totals of the debits and credits, the result will reflect the inventory of stock per records. Step 3. Stock Inventory Per Physical Count . A physical count on the inventory of stocks on petroleum products can be deducted either by the meter reading system or the sounding method. The sounding method is universally used in the oil industry, as it is found to be more accurate. A calibrated dip tape is lowered to the hatch at the top-most of the storage tanks and it will show a mark indicating the level of the product. The level of the product is then checked with the corresponding calibration table for conversion table to show the quantity of the products in liters or other official unit of quantity. In cases where there are water levels in the tank, the same should be deducted. A similar procedure is then conducted to all the other storage tanks to be ascertained. If the actual day of the inventory taking is conducted on a day other than the official cut-off date, then a work forward or a work back has to be done as the case may be. All the recorded transactions (receipts/productions and removals) within the period has to be added or deducted to the actual physical count. In most cases a work back has always been done as the actual stocktaking takes place several days after the official cut-off date. Seldom is a stocktaking done before the cut-off date. In working back all withdrawals within the period are added back to the physical count and all productions/receipts are subtracted. The reverse is done in case of working forward. Illustration On July 1, 1983 Executive Order No. 900 was promulgated increasing the price and the specific tax rates on the following petroleum products: Kind Old Rate New Rate Premium Gas P1.10/liter P1.38/liter Regular Gas 1.06/ " 1.34/ " The Commissioner of Internal Revenue several days later issued an LA to conduct a stocktaking on the effective date of the Executive Order as a matter of procedure. The actual day of physical inventory took place on July 5, 1983 the results were as follows: Beginning Stock Inventory * July 5, 1983 (in liters) Kind Quantity Premium Gasoline 2,000,000 liters Regular Gasoline 1,200,000 liters Transactions (Per ORB): Receipts/ Transfer/ Productions Removals July 4, 1983 - Premium gasoline 400,000 ltrs. 200,000 ltrs. Regular gasoline 100,000 " 200,000 " July 3, 1983 - Premium gasoline 200,000 ltrs. 100,000 ltrs. Regular gasoline 300,000 ltrs. 200,000 ltrs. July 2, 1983 - Premium gasoline 100,000 ltrs. 100,000 ltrs. Regular gasoline 300,000 ltrs. 200,000 ltrs. July 1, 1983 - Premium gasoline 200,000 ltrs. 100,000 ltrs. Regular gasoline 300,000 ltrs. 200,000 ltrs. WORKBACK METHOD Prem. Gasoline Reg. Gasoline Stock on Hand * July 5, 1983 2,000,000 ltrs. 1,200,000 ltrs. July 4, 1983 (400,000 ltrs.) (100,000 ltrs.) 200,000 ltrs. 200,000 ltrs. July 3, 1983 (200,000 ltrs.) (300,000 ltrs.) 100,000 ltrs. 200,000 ltrs. July 2, 1983 (100,000 ltrs.) (300,000 ltrs.) 100,000 ltrs. 200,000 ltrs. July 1, 1983 (200,000 ltrs.) (300,000 ltrs.) 100,000 ltrs. 200,000 ltrs. 2,500,000 ltrs. 2,000,000 ltrs. (900,000 ltrs.) (1,000,000 ltrs.) Inventory Stock as of 7/1/83 - 1,600,000 ltrs. 1,000,000 ltrs. Step 4. Preparation of Certificate of Inventory . After conducting the physical inventory, a certificate of stocktaking is then prepared. The Certificate should show the date of the inventory taking, kind of products and the corresponding quantities and must be signed by the investigating revenue officers and attested to by the representative of the oil company. IV. EVALUATION: Compare the stock inventory per record (Step 2) with the stock inventory per physical count (Step 3). If the physical count is more than the stocks per record, then there is an overage. Overages may show an unrecorded productions or receipts. It should be carried on the ORBs as part of the productions or receipts and noted as an entry on the debit side. If the physical count is less than the stock per record, it shows there is a shortage. Shortages may mean an unrecorded removals or due to losses (evaporations, storage, handling or in-transit losses). Any shortages is subject to an assessment for specific tax. All losses on finished or refined petroleum products are likewise subject to specific tax. aisa dc Counter-check the figures obtaining in the stocktaking with the following records for any discrepancies: a. Annual stock inventory. submitted per bookkeeping regulations; b. Withdrawal Certificate. showing removals both bonded and taxpaid accompanying every shipment from the refineries or bonded terminals; and c. Revenue Tax Receipt (RTR) and Confirmation Receipt (CR). official receipts on the specific tax payments made. V. REPORT MAKING: The final phase is the making of report; memorandum address to the Commissioner of Internal Revenue showing an assessment if any, or any violations of any laws or regulations detected in the course of the investigation. Recommendations may also be made to improve procedures and methods in the operations of the company. Attached to the report is the Certificate of Stocktaking and other working papers. Republic of the Philippines Ministry of Finance BUREAU OF INTERNAL REVENUE Quezon City REPORT OF INVESTIGATION Name of Taxpayer : ___________________________ Business Style: _________ Address : ___________________________ Date Reported: _________ Authority Number : _______ Date: ______________ Issued By: _____________ Period Covered : _______________________________________________________ Kind of Business : _______________________________________________________ Total Amount Reported : ....................................................P________________________ Consisting Of: (a) Specific Tax __________________ (b) Privilege Tax __________________ (c) Surcharge __________ (d) Compromise __________ Total ========= Nature of violation or discrepancy: ___________________________ ___________________________ ___________________________ ___________________________ ___________________________ Is the taxpayer agreeable to the findings? ___________ I/WE hereby recommend the approval of this report, together with the recommendations stated herein. ___________________________ ___________________________ ___________________________ ___________________________ RECOMMENDING APPROVAL: ___________________________ CONCURRED IN: ___________________________ APPROVED: ___________________________ ANNEX D STOCKTAKING PROCEDURE After serving the letter of authority to conduct stocktaking, require the owner, manager or his duly authorized representative to present the following: cdt 1. Permit to engage in business as wholesale leaf tobacco dealer issued by the BIR which is renewable every year; 2. Revenue Tax Receipt for the payment of annual fixed tax; 3. Official Register Book (BIR Form No. 31.46); 4. Official Guia Book (BIR Form No. 31.48), including unlifted guias accompanying shipments of tobacco received; 5. Purchase Invoice & Vouchers (PIVs); 6. Revenue Tax Receipts for the payment of tobacco inspection fees; 7. Sales Invoices; and 8. Copy of the Annual Inventory of Stocks submitted to the BIR as required by the bookkeeping regulations. UPDATING OF ACCOUNTS & CLOSURE OF OFFICIAL REGISTER & GUIA BOOKS : Before closing the official register book, the same must be updated by recording in the proper column on the "debit" page all purchases of tobacco that remain unentered as well as the recording of all removals or transfers of tobacco that are still unentered on the "credit" page. Closing of the Official Register Book is done by drawing a horizontal line, in red ink, after the last debit and credit entries which should be initialed by a member of the stocktaking team. The closing of the Official Guia Book is done by noting the last official guia stub (serial numbers) used in the official guia book. COUNTING OR TAKING OF INVENTORY ON HAND : The closing of the books and physical counting of tobacco stock on hand shall be done simultaneously. Counting must be done in the presence of the owner, manager or his duly authorized representative. Loose tobacco (still unpacked) must be weighed on a licensed platform scale or steel yard available in the warehouse. In the case of packed tobacco, the net weight in kilos and classification are marked permanently and legibly with stencil on every bale, case or hogshead. The inventory team may open up a sufficient number of bales, cases or hogsheads selected at random (5% to 10% will suffice) to determine the accuracy of the classification and net weight as marked on the packages. Stock on hand per physical count should tally with the official book balance. THE STOCKTAKING WORKSHEET : While other members of the stocktaking team are conducting the inventory of tobacco stocks on hand, a member or two should proceed with the preparation of the worksheet showing the following data: cd i 1. Heading . The name of the tobacco establishment, the schedule, paragraph and assessment number; the title "worksheet"; the period covered by the stocktaking; and the authority number and date. 2. The worksheet proper shall invariably contain the following: (a) Book Balance Section which shows: Beginning Balance refers to the beginning balance of the current month as per official register book. ADD: Receipts (DR) refers to purchases made from the first day of the current month to date of stocktaking. Total Stock Available beginning balance plus receipts. LESS: Removals (CR) removals or transfers from the first day of the current month to date of stocktaking. Official Book Balance total stock available less total removals. (b) Stock Handles Section which shows: Beginning Balance refers to official book balance per previous stocktaking. ADD: Receipts (DR) from the official register book take a total of all entries on the debit page, to wit: (1) from the day after the date of the previous stocktaking to end of the month. (2) all full months covered by the current stocktaking period to be taken monthly. (3) from the first day of the current month to the cut-off date of current stocktaking. Total Stock Handled the sum of the beginning balance and total receipts. LESS: Removals (CR) from the official register book, total all entries on the credit page to wit: (1) from day after the date of the previous stocktaking to end of the month. (2) all full months covered by the current stocktaking period, to be taken monthly. (3) from first day of the current month to the cut-off date of current stocktaking. Official Book Balance total stock handled less total removals to tally with the Book Balance Section and physical inventory. After arriving at the official book balance, reconcile the same with the actual stock per physical count. In case of OVERAGE (actual stock is more than the book balance) the same shall be debited in the official register book duly initialed by a member of the stocktaking team. On the other hand, if there is any SHORTAGE (actual stock is less than the book balance) found, the same shall be thoroughly investigated and the assessment of all inspection fees, taxes and penalties due shall be made. Moreover, the shortage shall be taken into consideration in the computation of his income tax liability. PREPARATION OF STOCKTAKING CERTIFICATE AND REPORT : Immediately upon completion of the physical counting of tobacco stock and the stocktaking worksheet, a stocktaking certificate shall be prepared and signed by the members of the stocktaking team duly attended by the owner or his duly authorized representative. The stocktaking team shall submit a report of their findings with the attached stocktaking certificate to the Commissioner of Internal Revenue thru proper channels without unnecessary delay. Republic of the Philippines Ministry of Finance BUREAU OF INTERNAL REVENUE Quezon City REPORT OF INVESTIGATION Name of Taxpayer : ___________________________ Business Style: _________ Address : ___________________________ Date Reported: _________ Authority No. : _______ Date: _______________ Issued By: _____________ Period Covered : ______________________________________________________ Kind of Business : ______________________________________________________ Total Amount Reported : ..................................................... _______________________ Consisting Of: (a) Tobacco Inspection Fee _________________ (b) Privilege Tax _________________ (c) Surcharge _________________ (d) Compromise _________________ Total ================= Nature of violation or discrepancy: ___________________________ ___________________________ ___________________________ ___________________________ ___________________________ ___________________________ ___________________________ ___________________________ ___________________________ Is the taxpayer agreeable to the findings? ________________________ The undersigned Internal Revenue Officers hereby recommend the approval of this report, together with the recommendations stated herein. ___________________________ ___________________________ ___________________________ ___________________________ CONCURRED IN: ___________________________ Manager/Owner APPROVED: ___________________________ REPUBLIKA NG PILIPINAS Kagawaran Ng Pananalapi KAWANIHAN NG RENTAS INTERNAS TOBACCO INSPECTION DIVISION Quezon City, Metro Manila NAME : ______________________ DATE: ______________________ ADDRESS : ______________________ ______________________ L-3- ______________________ ______________________ STOCKTAKING REPORT ______________ (Period Covered) _______________ (Type of Tobacco) _____________________________________________________________________ : Bales : Bales : Total : Loose Leaf : Scrap & Others : 50's : 's : Std. Wt. : (kilos) : (kilos) : : : : : Beginning Inventory : : : : : ADD: Total Purchases (DR) : : : : : Total Stock Handled : : : : : Baled Tobacco : : : : : Transferred for rebaling : : : : : Rebaled tobacco : : : : : Total Stock Available : : : : : LESS: Total Removals : : : : : BOOK BALANCE : : : : : PHYSICAL INVENTORY : : : : : Shortage or Overage : : : : : ================================================ REMARKS: ------------------------- ------------------------- ------------------------- ------------------------- We hereby certify to the correctness of the above. ATTESTED & VERIFIED CORRECT: INTERNAL REVENUE OFFICER: ________________________ Manager/Owner (L-3- ______ )