Requiring Persons and Entities to Keep a Record of All Imported Materials Used in the Manufacture or Preparation of Tobacco Products Subject to Specific Tax

March 26, 1965 REVENUE REGULATIONS NO. 06-65 THE TOBACCO PRODUCTS MANUFACTURER'S RECORD OF IMPORTED MATERIALS SUBJECT : Requiring Persons and Entities to Keep a Record of All Imported Materials Used in the Manufacture or Preparation of Tobacco Products Subject to Specific Tax TO : All Internal Revenue Officers and Others Concerned Pursuant to the provisions of Section 338, in relation to Sections 4(j), 150, and 160, of Commonwealth Act No. 466, otherwise known as the National Internal Revenue Code, as amended, the following regulations are hereby promulgated relative to the release and recording of imported materials to be followed by internal revenue officers and by persons and entities who import such materials to be used by themselves in the manufacture or preparation of tobacco products subject to specific tax, and shall be known as "The Tobacco Products Manufacturer's Record of Imported Materials". SECTION 1. Articles and Persons Covered . All persons and entities engaged in the manufacture or preparation of tobacco products subject to specific tax, who import any materials to be used in such manufacture or preparation of tobacco products subject to specific tax, excepting cigarette paper in rolls or bobbins and imported leaf tobacco, the same being regulated by Revenue Regulations No. V-7 of the Department of Finance, otherwise known as the Cigarette Paper Regulations, in relation to Section 160 of the National Internal Revenue Code, and Revenue Regulations V-39 of the Department of Finance, otherwise known as the Tobacco Products Regulations, respectively, are required to keep a record of imported materials. SECTION 2. What and Where to File Application for Release of Imported Materials . Persons and entities engaged in the manufacture or preparation of tobacco products subject to specific tax, who import any materials shall, before such materials are removed from the customhouse, give written information to the Commissioner of Internal Revenue as to the nature, quantity, capacity, the place for which it is to be used, as well as the name of the person by whom it is to be used, and authority to release imported materials may, accordingly, be granted and the same to be presented to the Commissioner of Customs. It shall be the duty of the Commissioner of Customs of the port of entry, before allowing any removal of imported materials from customs custody, to require the production of the written authority to release imported materials issued by the Commissioner of Internal Revenue, and to assess and collect if any, the corresponding taxes, among others, as are mentioned under Sections 183(b) and/or 190 of the National Internal Revenue Code. SECTION 3. Supervision of Delivery by Internal Revenue Officer Required . Upon withdrawal of the imported materials from the customhouse, the Commissioner of Internal Revenue shall cause the supervision of the delivery thereof by an internal revenue officer to the place where the same are intended to be used or in the importer's own warehouse, duly approved by the Commissioner of Internal Revenue, and who shall require the importer thereof to submit a certificate, duly signed by him or his duly authorized representative, as to the receipt of the imported materials, stating therein the nature, quantity and capacity of the same, as well as the amount of charges paid before withdrawal from the Bureau of Customs and the invoice value of the shipment. This certificate shall be attached to the duplicate record of authority to release imported materials in the Bureau of Internal Revenue. In the case of liquid flavorings and medicinal preparations, the importer thereof shall be required, before the same are authorized to be released from the customhouse, to submit samples for laboratory analysis to be taken at random from the shipment under the supervision of an internal revenue officer accordingly assigned therefor. The laboratory analysis shall be for the purpose of determining the alcohol content of the ingredients required under Section 127 of the National Internal Revenue Code. SECTION 4. Registration of Official Receipt . Persons and entities herein concerned shall keep a register book or record prescribed in these regulations. The book before being installed, shall first be approved and registered with the Commissioner of Internal Revenue and shall be kept in addition to the books of accounts and other records required in Revenue Regulations No. V-1. Before any book, register, or record is presented for registration, there shall be placed on the front cover by the owner thereof an identification as to the kind of book, register, or record, the name and business address of the owner, the kind of business engaged in, and the schedule, paragraph and number of the privilege tax receipt issued for the business, if any. If the book, register, or record is approved, the following authentication shall be made by the approving officer on the reverse side of the front cover thereof: "This _______________ Volume No. __________ with _______ pages or sheets, is approved on this _____ day of _____________, 19 ___, for the purpose of Revenue Regulations No. ________. _____________________ (Signature) ______________________ (Designation of Officer) If the book, register, or record presented for approval is a continuation of previous books, registers, or records, besides the foregoing authentication, the following notation shall be added to the authentication: "Volume No. ________ of this _________ was approved on this ____ day of _________________, 19 ___. ___________________ (Signature) ____________________ (Designation of Officer) SECTION 5. Manner of Keeping Records . All imported materials (except cigarette paper and leaf tobacco mentioned under Section 1 of these regulations) received in the establishment of the importer shall be duly entered in the register book or record of such importer. The imported materials on hand, if any, and those subsequently received shall be entered in the debit column of the register book and those consumed or disposed should be entered in the credit column thereof in relation to the number or quantity of tobacco products produced, as in the following example: Wrapping paper 4 reams, or 4 meters, etc. 4 cartons Cellophane paper 4 reams, or 4 meters, etc. 4 cartons Flavoring 2 kilos, or 2 liters, etc. 4 cartons (a) Debit Entries . Each entry shall show the following: 1. Date of withdrawal or receipt from the customhouse. 2. Nature, quantity and capacity. 3. Name and address of person from whom received. 4. Amount of charges paid at the Bureau of Customs and invoice value thereof. LLjur (b) Credit Entries . Each entry in the credit column shall be made within one (1) week after consumption or disposal showing: 1. Dates of consumption or disposal. 2. Quantity consumed in relation to the quantity of tobacco products produced as indicated in the foregoing example. 3. If sold or loaned, to whom sold or loaned. 4. Date of authority from the Bureau of Internal Revenue. SECTION 6. Preservation of Register Book, or Record and Other Papers . All register books and other records relating to the importation of materials shall be preserved intact and in good condition for a period of at least five (5) years from the date of last entry in each book or record, together with all certificates referred to in Sections 3 and 7 hereof, and other supporting papers, and shall be made available or surrendered to internal revenue officers for examination and inspection at any time. SECTION 7. Stocktaking and Allowances for Wastes of Materials . The Commissioner of Internal Revenue shall cause the taking of physical inventory of the stock of imported materials thru his Department Chief charged with the enforcement of laws and regulations relative to the manufacture of tobacco products on which specific tax is paid at least every six (6) months or as often as may be found necessary. The stocktaking report shall show a summary of all debit and credit transactions and any shortage found in the inventories of stocks, together with the necessary recommendations. The shortage found, if any, of the imported materials shall be considered prima facie evidence that the materials were sold without the prepayment of the advance sales tax. In such case, the advance sales tax shall be assessed and collected pursuant to the provisions of Section 183 of the National Internal Revenue Code, aside from the requirements of these regulations. The importer herein concerned may be credited with allowance for wastage destroyed in the process of manufacture of tobacco products, provided that the wastage should be preserved, and before they are destroyed, the manufacturer shall make proper application therefor in writing to the Commissioner of Internal Revenue, who shall authorize and witness such destruction. The credit for allowance shall only be entered in the register book after the accomplishment of the certificates of destruction, which should be accomplished in at least three (3) copies signed by the manufacturer and by the internal revenue officer assigned to witness such destruction. In the case of worn-out and replaced cigarette machine spare parts, and similar materials, the same should likewise be preserved. If they are to be disposed of to foundry shops, scrap dealers, steel mills, and other persons engaged in similar industries, the owner thereof should likewise make an application in writing, stating therein the name and address of the persons and entities to whom they are to be delivered, the kind or description of the materials, and the quantity thereof, and he shall certify as to their unserviceability duly attested by an internal revenue officer who shall have been previously assigned to ascertain that they have been worn out and have been replaced. SECTION 8. Removals, Transfers, Sale and/or Loan . No person engaged in the manufacture of tobacco products who have imported materials declared before their release from the Bureau of Customs to be used in the manufacture or preparation of tobacco products shall remove, transfer, sell and/or loan such imported materials without prior authority from the Commissioner of Internal Revenue. Such authority may be granted upon proper request in writing, stating therein the quantity, description, the charges, if any, paid upon withdrawal from the Bureau of Customs and the invoice value of the same, and the name and address of the person or entity to whom the materials will be removed, transferred, sold and/or loaned. SECTION 9. Penal Provisions . Aside from the compensating tax and/or advance sales tax that may be assessed, any violation of the provisions of these regulations shall be penalized under Section 352 of the National Internal Revenue Code. SECTION 10. Effectivity . These regulations shall take effect after thirty (30) days from approval. cdi RUFINO G. HECHANOVA Secretary of Finance Recommended by: BENJAMIN N. TABIOS Acting Commissioner of Internal Revenue ATTACHMENT 1st Indorsement April 30, 1965 Respectfully returned to the Commissioner of Internal Revenue, Manila, Revenue Regulations No. 6-65, the Tobacco Products Manufacturer's Record of Imported Materials, dated March 26, 1965, requiring persons and entities to keep a record of all imported materials used in the manufacture or preparation of tobacco products subject to specific tax, approved. RUFINO G. HECHANOVA Secretary March 29, 1965 The Honorable The Secretary of Finance M a n i l a S i r : I have the honor to inform you that persons engaged in the manufacture of tobacco products subject to specific tax are importing materials to be used in, or in connection with, their production of tobacco products subject to specific tax. In the case of articles used in the manufacture of tobacco products on which the specific tax is paid, they are allowed release from the Bureau of Customs without the prepayment of the compensating tax or the advance sales tax under Sections 190 and 183(b), respectively, of the National Internal Revenue Code. In the case of articles used in connection with their business, the corresponding compensating tax of 7% of the total landed cost is assessed and collected pursuant to the aforementioned Section 190 of the same code. This letter is being presented, with the attached proposed Revenue Regulations on the subject for the reason that at present this Bureau has no means of knowing the whereabouts of these materials once they are released from the Bureau of Customs: whether they are really used in, or in connection with, the manufacture of articles subject to specific tax or sold to other persons or entities. Some means of control is necessary. There is a possibility that imported materials declared to be used in the manufacture of tobacco products subject to specific tax are sold, resulting in the loss of the 7% compensating tax based on the landed value plus 25% mark-up as required by law. On articles declared to be used in connection with the business of manufacturing tobacco products subject to specific tax, if sold, will result in the depletion of the correct tax base upon which the 7% tax is computed. To forestall the possibility of evading payment of the compensating tax and/or advance sales tax by persons engaged in the production of tobacco products on which specific tax is paid, it is respectfully recommended that all such persons be required to keep a record of all their importations. Internal revenue officers should supervise the delivery of imported materials upon their release from the Bureau of Customs to the importer's factory or warehouse and make the necessary entries in the record book of the importer to be prescribed by this Bureau. In the case of liquid flavoring extracts or ingredients which are said to contain alcohol, the importer should be required to submit samples thereof, taken at random from the shipment under the presence of an internal revenue officer accordingly assigned, to this Office for laboratory analysis before the same are released from the Bureau of Customs to determine the alcohol content as required under Section 127 of the Tax Code. It is opined that the attached proposed regulations will provide this Bureau protection from evasion of payment of the compensating tax and/or advance sales tax by persons engaged in the manufacture of articles subject to specific tax. If this meets with your approval, it is respectfully recommended that the enclosed proposed revenue regulations known as "The Tobacco Products Manufacturer's Record of Imported Materials" be signed for release. Very truly yours, BENJAMIN N. TABIOS Acting Commissioner of Internal Revenue March 29, 1965 MEMORANDUM FOR: The Commissioner of Internal Revenue There are enclosed herewith a proposed explanatory letter of even date to the Honorable, the Secretary of Finance, for your signature and a proposed Revenue Regulations known as "The Tobacco Products Manufacturer's Record of Imported Materials". The salient point of your memorandum and the proposed regulations is to impose some means of control on materials imported by tobacco products manufacturers allegedly to be used in, or in connection with, the manufacture of tobacco products on which the specific tax is paid, by requiring them to keep a record of their imported materials, with the end in view to protect this Bureau from possible evasion of the payment of the compensating tax and/or the advance sales tax under Sections 190 and 183(b) of the National Internal Revenue Code by the said manufacturers. If this meets with your approval, the said letter and the proposed regulations may be signed by you for release. cdtech Respectfully submitted, POLICRONIO BLANCO Acting Revenue Operations Head (Specific Tax) May 20, 1965 The Director Bureau of Printing M a n i l a S i r : I have the honor to forward herewith a copy of Revenue Regulations No. 6-65, The Tobacco Products Manufacturer's Record of Imported Materials dated March 26, 1965, the subject of which is "Requiring persons and entities to keep a record of all imported materials used in the manufacture or preparation of tobacco products subject to specific tax", with the request that it be published in the first available issue of the Official Gazette. cdt Very truly yours, MISAEL P. VERA Deputy Commissioner of Internal Revenue