Sales Tax Regulations on Subsequent Sales

January 9, 1986 REVENUE REGULATIONS NO. 01-86 SUBJECT : Sales Tax Regulations on Subsequent Sales TO : All Internal Revenue Officers and Others Concerned Pursuant to the provisions of Section 277 in relation to Section 165(B), both of the National Internal Revenue code, as amended, the following regulations are hereby promulgated: SECTION 1 . Scope . These Regulations shall govern the implementation of sales tax on subsequent sale, filing of returns and the payment of tax. SECTION 2 . Definition of terms . As used herein, the following terms and phrases shall have the meaning hereunder indicated: (a) "Person" any individual, a trust, estate, partnership, or cooperation. (b) "Subsequent sale" except as provided in Section 3 hereof, the sale, barter, exchange, transfer, or similar transaction for nominal and valuable consideration intended to transfer ownership of or title to any domestically acquired article where such article has not undergone any further processing or transformation. (c) "Gross selling price" the gross value in money or its equivalent which the vendee pays to the vendor for the goods. SECTION 3 . Persons liable . Any person engaged in the subsequent sale of any article shall be liable to pay the sales tax on subsequent sale except on the sale of the following articles: (a) Manufactured oils and other fuels except lubricating oil, processed gas, grease, wax, and petrolatum; (b) .22 Caliber firearms and cartridges, as well as other forms of ammunition sold or delivered directly to the Armed Forces of the Philippines or any government instrumentality, or agency engaged in maintaining peace and order for their use or issue. (c) Any newspaper, magazine, review or bulletin which appears at regular intervals, with fixed prices for subscription and sale and which is not devoted principally to publication of advertisement; (d) Articles shipped as exported by a trader, irrespective of any shipping arrangement that may be agreed upon which may influence or determine the transfer of ownership of the articles so exported; (e) Sale by traders direct to foreign tourists and paid for in convertible foreign currency if the articles so sold are actually brought out of the Philippines by the buyers upon their departure; (f) Food, beverages, milk, dairy products, distilled spirits, fermented liquors or wines, the proceeds from the sale of which form part of the gross receipts of proprietors or operators of restaurants and other eating places subject to caterer's tax; and (g) Those that may be granted by the President upon recommendation of the National Economic and Development Authority in the interest of economic development. SECTION 4 . Rate and base of tax . The tax on subsequent sale is 1.5% of gross selling price or gross value in money of the article sold. Sale of agricultural products in their original state shall be subject to 0% rate of tax. Rice and corn shall be considered as agricultural products in their original state even if they have undergone milling. In the case of a sale by a duly registered and accredited dealer to a manufacturer-buyer the sales tax on the original sale passed on by the said dealer to a manufacturer-buyer shall form part of the tax base. In computing the taxable base, discount may be allowed as a deduction from gross selling price provided said discounts are given at the time of the sale and are expressly indicated in the sales invoice. Sales returns and allowances shall be allowed as deductions from the gross sales in the month when such returns and allowances are made. If the returns or allowances exceed the gross sales for the month, the excess may be carried over to the succeeding month or months. acd Articles consigned are considered sold on the day of the sale or sixty days after the date of consignment, whichever is earlier. SECTION 5 . Computation . The gross selling price or gross value in money multiplied by the rate of tax (1.5%) shall be the gross sales tax due on subsequent sale. If the seller includes an amount intended to cover the sales tax on subsequent sale in the gross selling price of the article, the tax shall be based on the gross selling price less the amount intended to cover the tax, if the tax is billed to the purchaser as a separate item in the invoice. Otherwise, the amount intended to cover the sales tax shall be considered as part of the gross selling price of the article sold. To illustrate: Example 1. "A" Knitting Company purchased yarn form ABC Trading Corporation under the following invoice : ABC TRADING CORPORATION No. 1 Tanque, Paco Manila Invoice No. 00001 January 1, 1986 SOLD TO: "A" Knitting Company Muntinlupa , Metro Manila 1,000 kilos yarn at P10.00 per kilo P10,000 1.5% tax 150 TOTAL P10,150 In the above example, the gross selling price for purposes of the tax on subsequent sale is P10,000. Example 2. Same buyer and seller as above but tax is indicated as follows: Invoice No. 00001 January 1, 1986 SOLD TO: A Knitting Company 1,000 kilos yarn P10,150 (Sales tax of P150.00 included) In this example, the tax is not billed separately. The gross selling price for purposes of the tax is P10,150. Example 3. "A" Knitting Company sold to XYZ Trading, a duly accredited dealer, 10,000 meters of cloth at P10.00 per yard which it invoiced as follows:- "A" KNITTING COMPANY nvoice No. 00015 January 1, 1986 SOLD TO: XYZ Trading 1051 C.M. Recto Divisoria, M.M. 10,000 meters denims P10.00/meter P100,000 20% tax 20,000 TOTAL P120,000 XYZ Trading in turn sold the 10,000 meters denims to Philippine Garment Manufacturing Corporation as follows: Invoice No. 101115 January 1, 1986 SOLD TO: Philippine Garment Manufacturing Corp. 10,000 meters denims P12/meter P120,000 20% tax separately billed by "A" Knitting 20,000 1.5% second sale tax (.015 x 140,000) 2,100 TOTAL P142,100 In the above example, the 1.5% tax is based on the selling price plus the 10% tax passed on by XYZ Trading which is a duly registered and accredited dealer. Philippine Garment Manufacturing Corporation shall be entitled to P22,100 as tax credits on his sales tax composed of : (1) 20% tax allowed to be passed on by the dealer P20,000 (2) 1.5% tax passed on by the dealer 2,100 TOTAL P22,100 XYZ Trading in the same example may also invoice its sale to Philippine Garment Manufacturing Corporation: Invoice No. 10115 January 15, 1986 SOLD TO: Philippine Garment Manufacturing Corp. 10,000 meters denims P140,000 1.5 sales tax on subsequent sale 2,100 TOTAL P142,100 In the above example, the 1.5% tax shall be based on P140,000. Philippine Garment Manufacturing Corporation shall be entitled to tax credits on his sales tax on finished garments to the extent of P2,100 only, because XYZ Trading, even if it is an accredited dealer, did not indicate the P20,000 sales tax passed on to it as a separate item in the invoice. cd SECTION 6 . Tax credits . Any excise, sales, miller's or percentage taxes passed on to the subsequent seller shall not be allowed as a credit against the sales tax due on subsequent sale. However, any sales tax on subsequent sale withheld by government offices under the provisions of R.A. 1051 may be deducted from the sales tax due on subsequent sale. SECTION 7 . Filing of sales tax returns on subsequent sale and payment of the tax due thereon . (a) Who shall file a return and pay the tax . - In general, it shall be the duty of every person conducting a business on which a tax on subsequent sale is imposed to file a true and complete return of the amount of his gross monthly sales within ten days after the end of each month and pay the tax due thereon. However, if the average monthly tax due as shown in the Taxpayer's Registration and Credit Information Sheet (BIR Form No. 2529D-1) does not exceed P50, the return shall be filed and the tax due paid within twenty days after the end of each quarter. Any person retiring from business subject to the tax on subsequent sale shall immediately notify in writing the proper internal revenue officer, file his return or declaration and pay the tax due thereon within twenty days after closing his business. (b) Where to file . The return (BIR Form No. ______) shall be filed in duplicate with the Revenue District Officer, Collection Agent, or duly authorized Treasurer of the city or municipality where each and every separate branch or distinct place of business is located. Any person required to file a return may, at his option, file as many returns as there are separate or distinct places of business where sales and other business transactions subject to tax on the second sale are conducted, or consolidate all his taxable transactions within the same revenue district and file only one return with the revenue officer of the district. Separate returns shall be filed for establishments located in different revenue districts. casia Where a business establishment is transferred from the geographical jurisdiction of one revenue district to that of another, the return shall be filed with the proper revenue officer of the district where the establishment is transferred. (c) When to pay . The total amount of the tax due shall be paid by the person subject thereto at the time the return is filed, unless otherwise prescribed by the Commissioner. (d) Addition to the tax . If the sales tax on subsequent sale is not paid within the time specified, the amount shall be increased by a surcharge of 25%, the increment to be a part of the tax and the entire amount (tax and surcharge) shall be subject to interest at the rate of 20% per annum , or such higher rate as may be prescribed for the period from the due date prescribed for payment until the amount is fully paid. In case of willful neglect to file the return within the time prescribed or in case a false or fraudulent return is willfully made, there shall be added to the tax or the deficiency tax in case any payment has been made on the basis of such return before the discovery of the falsity or fraud, a surcharge of 50% of its amount and the entire unpaid amount (tax and surcharge) shall be subject to interest at the rate of 20% per annum , or such higher rate as may be prescribed. The amount so added to any tax shall be collected at the same time and in the same manner and as part of the tax unless the tax has been paid before the discovery of the fraud, in which case, the amount so added shall be collected in the same manner as the tax. SECTION 8 . Registration . Every person engaged in business on which the percentage tax on subsequent sale of articles is imposed shall, on or before the commencement of his business, register by accomplishing and filing the Application for Registration for Business (BIR Form No. 2529D-2) and the Taxpayer's Registration Credit Information Sheet (BIR Form No. 2529D-1) with the Revenue District Office of the city or municipality in which his business is located but not later than ten (10) days after securing his privilege tax receipt. Owners or proprietors of businesses existing at the time of the effectivity of these regulations shall register not later than January 30, 1986, except those whose businesses have already been duly registered under RR 11-85. If a taxpayer has two or more branches or establishments located in cities or municipalities falling under the jurisdiction of different revenue district offices, he shall register each branch or establishment separately with the revenue district office concerned. However, if such branches or establishments are located within the territorial jurisdiction of one revenue district office, a consolidated registration may be filed for such branches or establishments. A taxpayer, who transfers his place of business from the territorial jurisdiction of one revenue district office to that of another, shall re-register with the latter revenue district office within the time prescribed herein. In meritorious cases, the Commissioner of Internal Revenue may allow a consolidated registration by taxpayers having different branches, agencies or sales outlets situated in different revenue districts, In such cases, the application shall be filed with the Revenue District Office where the head office is located. SECTION 9 . Inventory of imported articles . In the addition to the regular year-end inventory, all importers shall submit on or before January 30, 1986 a separate inventory, as of December 31, 1985, of all unsold articles imported by them. The inventory list shall indicate the quantity, description, unit cost and the total cost of every item of his stock-in-trade. Thereafter, any unsold article imported by the importer himself prior to January 1, 1986 shall be separately indicated in the regular year-end inventory. cd SECTION 10 . Payment of privilege taxes . Before engaging in business, and every year thereafter, any person subject to the percentage tax on subsequent sale, in addition to any other privilege tax that may be due from him, shall secure an annual privilege tax in the amount of P200.00, except those required to secure a privilege tax under Section 161(3) of the Tax Code, in which case they should pay the fixed tax imposed on the sale of articles specifically identified therein. SECTION 11 . Effectivity . These regulations shall take effect January 1, 1986. (SGD.) CESAR E.A. VIRATA Minister of Finance Recommending Approval: (SGD.) RUBEN B. ANCHETA Acting Commissioner