Locally Manufactured Articles under Section 185 of the National Internal Revenue Code, as amended

December 15, 1970 REVENUE REGULATIONS NO. 03-70 SUBJECT : Locally Manufactured Articles under Section 185 of the National Internal Revenue Code, as amended TO : All Internal Revenue Officers and others concerned Pursuant to the provisions of Section 338, in relation to Section 185, of the National Internal Revenue Code, the following regulations are hereby promulgated: SECTION 1. Scope . These regulations refer only to the articles mentioned in subsections (g), (h), (i), (o), (p) and (r) of Section 185 of the National Internal Revenue Code, as amended, namely: aisa dc (1) Phonograph records; (2) Firearms and cartridges or other forms of ammunition; (3) Electric fans and air circulators; (4) Electric, gas or oil water heaters; (5) Electric flat irons; (6) Electric, gas or oil appliances of the type used for cooking, warming, or keeping warm food or beverage for consumption on the premises; (7) Upholstered furniture, tables, desks, chairs, showcases, bookcases, lockers, and cabinets of which wood, rattan or bamboo is not the component material of chief value; (8) Textiles, wholly or in chief value of silk, wool, linen or nylon or other synthetic and/or chemical fabrics; and (9) Toys and play things of all sorts. SECTION 2. Rates of tax . The articles enumerated in Section 1 are subject to the 40% sales tax. However, if said articles are locally manufactured as defined in Section 3 hereof, they shall be subject only to the 7% sales tax prescribed in Section 186 of the Tax Code. Locally manufactured parts and accessories to be used in the manufacture of articles found to qualify as locally manufactured shall be subject to the 7% sales tax. Imported parts and accessories to be used by the importer thereof in the manufacture of articles found to qualify as locally manufactured shall be subject only to the 7% advance sales tax, provided that such parts and accessories shall constitute not more than 20% of the total quantity of the components and/or parts of the finished article. SECTION 3. Locally Manufactured Articles Defined . In order to qualify as locally manufactured within the purview of these regulations, at least eighty (80%) per centum of the total quantity of the components and/or parts of the article should be locally manufactured or produced. However, this requirement does not apply to phonograph records, firearms and cartridges and other forms of ammunitions, and textiles, it being sufficient that said articles are made or produced in the Philippines. SECTION 4. Procedure in establishing qualification of article as locally manufactured . A manufacturer of any of the articles mentioned in Section 1 hereof who desires to avail of the tax privilege granted locally manufactured articles under subsections (g), (h), (i), (o), (p) and (r) of Section 185 of the Tax Code, as amended, must file a written application with the Commissioner of Internal Revenue, stating, among others, the following: (1) Name and address of the manufacturer; (2) Location of the factory or manufacturing plant; (3) The article being manufactured and the various components and/or parts thereof; (4) The components and/or parts of the article which he is manufacturing; (5) The materials, components and/or parts he purchases from local manufacturers or dealers in locally manufactured materials, components and/or parts, and the names and addresses of said local manufacturers and dealers; aisa dc (6) The materials, components and/or parts which he imports from abroad and/or purchases from importers and dealers in such imported materials, components and/or parts, and the names and addresses of said importer and dealers; (7) The machinery and equipment used by him in his manufacture of the article or articles; and (8) A description of how the article is manufactured, attaching therewith plans and sketches showing the details of the manufacturing process. Upon receipt of the application filed by the manufacturer, the Commissioner of Internal Revenue shall cause the inspection of the factory or manufacturing plant of the applicant and the internal revenue officers assigned to the case shall observe the facilities of the factory or manufacturing plant of the applicant and the actual manufacturing operations therein. They shall ascertain the materials, components and parts being used in the manufacture of the article claimed to be locally manufactured, the name and address of the seller or sellers thereof, and whether or not said materials, components and parts are produced or manufactured in the Philippines. They shall also ascertain what imported materials, components and parts form part of the finished article and determine what percentage of the total quantity of the components and parts of the finished article is of local manufacture and what percentage thereof represents imported materials, components and parts. aisa dc If from the findings reported by the investigators and the evidence on record, the Commissioner of Internal Revenue is satisfied that the article in question can be considered a locally manufactured article as defined in Section 3 hereof, he shall so inform the applicant. If the article does not qualify as a locally manufactured article, he shall likewise inform the applicant of his findings. SECTION 5. Supervision and Control . The Commissioner of Internal Revenue shall see to it that those availing of the privilege granted local manufacturers of the articles mentioned in subsections (g), (h), (i), (o), (p) and (r) of Section 185 of the Tax Code are complying with these regulations. He shall cause periodic inspection of the factory or manufacturing plants of said local manufacturers and require internal revenue officers assigned to inspect said factories and plants to immediately submit their findings after each inspection. SECTION 6. Monthly Report to be filed by manufacturers . Manufacturers enjoying the tax privilege granted under the abovementioned subsections of Section 185 of the Tax Code shall submit to the Commissioner of Internal Revenue a monthly report within fifteen days after each calendar month on raw materials, components and parts imported and/or purchased by him, showing (a) Quantity and kind of materials, components and parts imported by him, the total landed cost thereof, the rate of and amount of tax paid thereon and the number and date of official receipt covering such payment of tax; (b) Quantity and kind of imported materials, components and parts purchased from importers and dealers, stating the names and addresses of said importers and dealers; (c) The quantity of imported materials, components and parts used in the manufacture of the finished articles. (d) Number of finished articles manufactured and number of units still in process; and (e) Quantity of imported materials, components and parts still unused. The manufacturer shall certify in his monthly report that there has not been a substantial change in the manufacture of the article as will affect or change the status of his finished product or article as "locally manufactured" within the purview of Section 3 of these regulations. aisa dc SECTION 7. Effectivity . These regulations shall take effect fifteen (15) days after publication in the Official Gazette. CESAR VIRATA Secretary of Finance Recommended by: MISAEL P. VERA Commissioner of Internal Revenue ANNEX A 1st Indorsement January 7, 1971 Respectfully returned to the Commissioner of Internal Revenue, Manila, the attached Revenue Regulations No. 3-70, dated December 15, 1970, duly approved. CESAR VIRATA Secretary ANNEX B December 19, 1970 The Honorable The Secretary of Finance M a n i l a S i r : I have the honor to submit herewith proposed Revenue Regulations No. 3-70 for your approval. aisa dc Very truly yours, MISAEL P. VERA Commissioner of Internal Revenue