Sales tax regulations on automobiles

December 27, 1985 REVENUE REGULATIONS NO. 03-86 SUBJECT : Sales Tax Regulations on Automobiles TO : All Internal Revenue Officers and Others Concerned Pursuant to the provisions of PD 1994 in relation to Section 277 (326) and Section 4 of the Tax Code, these regulations are hereby promulgated. SECTION 1 . Scope . These regulations shall govern the percentage tax on sales of automobiles, as provided for under Section 164 (195) of the Tax Code. SECTION 2 . Definition of terms . For purposes of these regulations, the following definitions of terms are hereby adopted: (a) "Suggested retail or list price" shall mean the price, net of tax, at which locally manufactured automobiles are offered for sale to the public, as fixed by the assembler, which shall in no case be less than 15% over and above the wholesale price of the assembler to the dealer; or not less than 30% over and above the manufacturing cost, in case of direct sales to the public by the assembler. For purposes of this definition, the selling price of the assembler to the dealer shall be the total amount billed against the dealer excluding the sales tax. cd i (b) "Actual Retail Price" shall mean the actual price at which the automobile is sold, bartered or exchanged by the dealer/assembler to the purchaser end user, excluding freight insurance and/or tax shifted to the purchaser, if the said items are billed separately in the sales invoice. (c) "Manufacturing cost" - the sum of direct costs consisting of direct materials and direct labor plus manufacturing expenses. (d) "Standard parts and accessories" shall mean the ordinary regular and essential components with which an automobile is usually equipped at the time it is offered for sale to the public. (e) "Parts and accessories of automobiles which are principally for ornamentation or embellishment" shall mean accessories which are not essential in the operation of an automobile but principally for adornment, embellishment and ornamental purposes such as, but not limited to, musical or multiple tone type horns, roof or boat racks, competition headers, console boxes, steering wheels 12 inches or less in diameter, sliding roofs, fancy and chrome pedal pads, sequential turn signal kits, hood scoops, rear spoilers, external sun visors, and chrome mufflers. (f) "Sale of an automobile" is the sale of the chassis and body together with the parts and accessories with which automobiles are usually equipped, including standard parts and accessories permanently attached thereto at the time of the original sale. The term "automobile" used herein shall not include motor vehicles classified as trucks, jeeps and utility vehicles. acd SECTION 3 . Bases and rates of tax . The percentage tax due on sale of automobiles shall be levied, assessed and collected once only on every original sale, barter, exchange or similar transaction for nominal or valuable consideration intended to transfer of or title of automobiles, to be paid by the manufacturer or importer. (a) Rates of tax . (i) For automobiles . The tax rates shall depend on (A) the engine displacement of the automobile sold, bartered or exchanged and on (B) whether the automobiles require the use of gasoline or diesel fuel oil. The following are the prescribed rates: Engine Displacement Tax Rate Gasoline Diesel 30% Up to 1200 cc Up to 1850 cc 35% 1201 to 1600 cc 1851 to 2050 cc 40% 1601 to 1800 cc 2051 to 2250 cc 50% 1801 cc or over 2251 cc or over (ii) For parts and accessories . (1) Parts and accessories of automobiles imported as completely knocked down (CKD) parts by assemblers registered under the progressive car manufacturing program (PCMP) of the Board of Investments, or their replacements 20%. (2) Imported and locally manufactured spare parts and accessories with which automobiles are usually equipped 20%. (3) Parts and accessories of automobiles which are principally for ornamentation and embellishment - 50%. (b) Basis of tax on sale of an automobile . The tax shall be based on either the "suggested retail or list price" or the "actual retail price," whichever is higher. In the case of imported automobiles the suggested retail price shall be computed in the same basis as locally manufactured automobiles. However, in case of direct sale to the public by the importer, the suggested retail price shall not be less than 30% over and above the total value used by the Bureau of Customs in determining the advance sales tax. cd In any case where the actual retail price is higher than the suggested retail price, the tax shall be recomputed based on the actual retail price and any deficiency tax arising therefrom shall be assessed and collected from the assembler, any agreement between the latter and the dealer to the contrary notwithstanding. In the event, however, that the suggested retail or list price is less than 15% over and above the selling price of the assembler to the dealer or is less than 30% over and above the manufacturing cost in case of direct sale to the public by the assembler, the suggested retail or list price shall be recomputed to conform the minimum requirement of the law and any deficiency tax arising therefrom, including surcharge and interest, shall be assessed and collected from the assembler. (c) Sale of company cars . The sales tax on original sale of any automobile previously withdrawn from the stock of manufactured automobiles for company use which is subsequently sold within one year from the date of withdrawal shall be based on the actual selling price, net of tax, or 70% of the suggested retail price prevailing at the time of the sale, whichever is higher. A tax credit equivalent to the ratio which the tax base used in computing sales tax over the suggested retail price at the time of sale bears to the tax credit corresponding to the automobile sold which was previously removed from deferred tax credit shall be allowed on the sales tax due. Sales of automobiles used as company cars after the one-year period shall be considered as sales of ordinary assets by the manufacturer. The manufacturer shall submit a report to the Commissioner of Internal Revenue of all manufactured automobiles that will be used in the business of the manufacturer himself within thirty (30) days from withdrawal. A notice of any disposition of such automobiles should be submitted to the Commissioner within thirty (30) days after each disposition which should contain among others the following information: (1) Description of car Make Model Engine No. Chassis No. (2) Date of sale (3) Date of withdrawal from stock (4) Name and address of buyer (5) Selling price: Sales price Tax Total (6) SRP/similar make (7) Tax credit previously deducted (d) Illustrative examples . The applicability of the provisions of the immediately preceding paragraphs in relation to Section 2(a) and (b) may be illustrated by the following examples : casia Example 1. Sale by assembler to dealer: Given: Wholesale price (WP) of an automobile with a 1600 cc gasoline engine (net of tax) P150,000 Rate of tax for 1600 cc 35% The law provides that the "suggested retail or list price" (SRP) shall in no case be less than 15% over and above the wholesale price of the assembler to the dealer. Hence the formula for determining the suggested retail or list price should be as follows: SRP = WP + .15(WP) SRP = 150,000 + (1.5 X 150,000) SRP = 150,000 + 22,500 SRP = 172, 500 Sales tax due = 172,500 x .35 = P60,375 Example 2. Direct sale to the public by the assembler: The law provides that the "suggested retail price" shall in no case be less than 30% over and above the manufacturing cost. Hence the formula for determining the "suggested retail price" and the sales tax due should be as follows: Given: Manufacturing cost is P120,000 SRP = MC + .30(MC) SRP = P120,000 + (.30 X 120,000) SRP = P120,000 + 36,000 SRP = P136,000 Situation 1. Actual selling price is less than the SRP . If the automobile is sold for P150,000, the tax is computed as follows: Sales tax = P156,000 x .35 = P54,600 Situation 2. Actual selling price is more than the SRP . If the automobile is sold for P170,000, the tax is computed as follows; Sales tax = P170,000 x .35 = P59,500 Example 3. Actual retail price (ARP) is higher than the suggested retail price (SRP) Assume: The same car in Example 1 was sold by the dealer for a total selling price of P250,000, exclusive of freight and insurance charges but including the tax passed on to him by the assembler in the amount of P60,375. To determine the base of the sales tax, compare SRP to ARP. SRP: P172,500 ARP: Total selling price P250,000 Less: Sales tax shifted 60,375 P189,625 Since the actual retail price is higher than the suggested retail price, the law dictates that the base of the tax should be the actual retail price, hence: New base of tax P189,625 Sales tax due thereon at 35% P66,368.75 Less tax previously paid P60,375.00 Tax still collectible from assembler (exclusive of surcharge and interest) P5,993.75 Example 4. Sale of company cars Given: A 1600 cc automobile was withdrawn from the stock for company use on February 1, 1986. It was subsequently sold August 1, 1986 for P100,000, net of tax. At the time of sale a similar automobile had a suggested retail price of P172,500, net of tax. The tax shall be computed as follows: Actual selling price, net of tax P100,000 172,500 x .70 (SRP x 70%) P120,750 In this case the tax should be P120,750 because it is the higher amount Tax base P120,000 Rate of tax on 1600 cc .35 Tax due P42,262.50 Less: Tax credit (per computation below) 24,850.00 Tax payable P17,412.50 Assume further that the tax credit was previously removed from the deferred tax credit account is P35,500. The allowable tax credit is computed as follows: Tax base P120,750 = - SRP 172,500 x 35,500 = P24,850 SECTION 4 . Tax credit . (a) On sales tax on original sale of automobiles . any excise or percentage tax paid under Titles IV and V of the Tax Code on domestically manufactured, processed produced, or imported raw material, part, accessory or other articles purchased during the taxable quarter and intended by the manufacturer for conversion into and to form part of an automobile for sale may be credited against the sales tax due on original sales of automobiles for the same quarter. In case the raw enterprise, from the payment of sales taxes, the sales or excise tax which the pioneer enterprise would have paid had it been taxable, may also be credited against the sales tax due for the same taxable quarter. All unused tax credits as of December 31, 1985 may be allowed to be carried over to the succeeding taxable quarter or quarters. In case the allowable tax credits during the taxable quarter exceeds the amount of the sales tax due on automobiles sold during the same taxable quarter, the excess may be carried over to the succeeding taxable quarter or quarters. The amount of tax credits carried over from the previous quarter and all excise and percentage taxes separately billed on purchases of raw materials, parts or accessories during the taxable quarter shall be reduced by the amount of tax on raw materials, parts, accessories or other articles which are sold, transferred, disposed of or those used in the manufacture of articles which are not for sale, such as, but not limited to, company cars, or those which for any other reason can no longer be used in the manufacture of automobiles during the same quarter. In case a manufacturer-exporter has applied for the issuance of a tax credit certificate in accordance with the provisions of Section 167, par. (d) (202) of the Tax Code, upon receipt of the tax credit certificate, he shall reduce the amount of available tax credit for the taxable quarter to the extent of the amount of the tax credit certificate. If the amount of the tax credits required to be deducted exceeds the balance of the tax credits available for tax credits during the current quarter, the excess shall be paid by the manufacturer in addition to the sales tax due for the same taxable quarter. The manufacturer can avail of the benefits of tax credits only if the requirements for the availments of sales tax credit prescribed in Revenue Regulations No. 19-84 are complied with. SECTION 5 . Submission of reports and publications thereof . Automobile assemblers shall submit to the Commissioner of Internal Revenue a sworn statement of the "Suggested retail or list price" of each particular brand, make or model of their automobiles and publish the same in a newspaper of general circulation, at least ten (10) days before the same are offered for sale. Any change in the price list mentioned above shall likewise be reported and published within the same period of time. SECTION 6 . Transitory Provisions . (a) Imported spare parts and accessories . - In addition to the regular year-end inventory, all automobile assemblers selling imported spare parts, accessories and other articles "as is" shall submit on or before January 30, 1986 a separate inventory, as of December 31, 1985, of all unsold spare parts, and accessories imported by them. The inventory list shall contain the following information: (1) Description of each item of inventory; (2) Quantity; (3) Unit price; and (4) Total value Thereafter, all spare parts, accessories or other articles listed in the said inventory at the end of the manufacturer's-assembler's taxable year shall be separately indicated in the regular year-end inventory. (b) Tax treatment of dealers inventory as of December 31, 1985 . Automobiles on hand and in the possession of dealers as of December 31, 1985, the taxes of which have already been paid under the old rates by the manufacturer's-assembler's, shall be inventoried by the dealer and the sales tax thereon shall be re-determined under the new rates prescribed under P.D. 1994. The selling price of the inventory of automobiles, the tax of which has already been paid under the old rates, must be adjusted. The manufacturer-assembler shall be entitled to credit an amount representing the excess of the sales tax paid on the inventory under Executive Order No. 838 over the amount of sales tax under the new rates prescribed by P.D. 1994, against the sales tax liability of the manufacturer-assembler. (c) Fiscal quarters . A manufacturer-assembler whose fiscal quarter commences before December 31, 1985 and extends to 1986, shall file his quarterly return within twenty days after the end of the fiscal quarter. However, he should attach to his percentage tax return an "auxiliary statement" segregating his gross sales in 1985 and gross sales in 1986, and compute the tax due on the basis of the prevailing rates at the time of sale. aisa dc SECTION 7 . Repealing Provision . All regulations, rulings or orders, or portions thereof issued in connection with the implementation of Section 164(195) of the Tax Code which are inconsistent with the provisions of these regulations are hereby revoked. SECTION 8 . Effectivity . These regulations shall take effect beginning January 1, 1986. (SGD.) CESAR E.A. VIRATA Minister of Finance Recommending Approval: (SGD.) RUBEN B. ANCHETA Commissioner