Sales Tax Regulations

May 12, 1978 REVENUE REGULATIONS NO. 08-78 SUBJECT : Sales Tax Regulations TO : All Internal Revenue Officers and Others Concerned Pursuant to the provisions of Section 326 in relation to Section 4, both of the National Internal Revenue Code of 1977, as amended, the following regulations are hereby promulgated. SECTION 1. Scope . These regulations shall govern the filing of the quarterly percentage tax return and payment of the tax due thereon, the advance sales tax on importations and the percentage tax on sales of locally manufactured products under the provisions of Sections 193, 194, 196, 197, 198, 199, 200, 201, 202 and 203 of the National Internal Revenue Code of 1977 as amended by Presidential Decree No. 1358. SECTION 2. Definition of Terms . In applying the provisions of these Regulations, the following words and phrases shall be taken in the sense and extension indicated below: (a) " Total Landed Cost " refers to the total of the following: 1. The home consumption value or price in the country where the article is purchased or procured (excluding the internal excise taxes imposed therein); 2. Ten per cent (10%) of such home consumption value or price; and, 3. Postage, commission, customs duty and all similar charges except freight and insurance imposed or incurred prior to the release of the goods from customs' custody. (b) " Material " means any article, which when used in the manufacture of another article, becomes a homogenous part thereof, such that it can no longer be identified in its original state nor may it be removed therefrom without destroying or rendering useless the finished article to which it has been merged, mixed or dissolved. (c) " Part or accessory " means any article adapted for use as a component part of another article or as a replacement part thereof, and not included in the definition of the term "material". (d) " Gross selling price or gross value in money " of articles sold, bartered or exchanged the total amount of money or its equivalent which the vendee pays to the vendor for the goods. (e) " Once only on every original sale " means the tax is paid once only on the sale of the articles by the producer or manufacturer. The same meaning shall be given to any exchange, barter or any similar transaction intended to transfer ownership. SECTION 3. Filing of Quarterly Percentage Tax Return and Payment of the Tax Due Thereon . (a) WHO SHALL FILE . It shall be the duty of every person conducting a business on which a percentage tax is imposed under Title V of the National Internal Revenue Code (Sections 194, 195, 196, 197, 198, 199, 201 and 203), to make a true and complete return of the amount of his, her or its gross quarterly sales, receipts or earnings, or gross value of output actually removed from the factory or mill warehouse within twenty (20) days after the end of each quarter and pay the tax due thereon. Where any person retires from business subject to the percentage tax provided in the above-mentioned sections, he shall immediately notify the nearest internal revenue officer, file his return or declaration, and pay the tax due thereon within twenty (20) days after closing his business. For purposes of computing the percentage tax, sales on consignment shall be considered sold on the day of sale or sixty (60) days after the date consigned, whichever is earlier. (b) WHERE TO FILE . The return shall be filed in duplicate under BIR Form No. 2529 and shall be under oath by the party rendering it. The return (original and duplicate) shall be filed with the Collection Agent and/or Cash Clerk of the City or Municipality where the principal place of business is located within twenty (20) days after the end of each quarter. If no Collection Agent or Cash Clerk is assigned to the Municipality or Municipal District, the return shall be filed with the Municipal Treasurer thereat. (c) WHEN TO PAY . The total amount of percentage tax due as shown in the return must be paid within twenty (20) days after the end of each quarter. (d) ADDITIONS TO THE TAX . If the percentage tax on any business is not paid within the time specified above, the amount shall be increased by a surcharge of twenty five per centum (25%), the increment to be a part of the tax and the entire unpaid amount (tax and surcharge) shall be subject to interest at the rate of fourteen per centum (14%) per annum . In the case of willful neglect to file the return within twenty (20) days after the end of the quarter, or in case a false or fraudulent return is willfully made, there shall be added to the tax or to 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 fifty per centum (50%) of its amount and the entire unpaid amount (tax and surcharge) shall be subject to interest at the rate of fourteen per centum (14%) per annum . 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 falsity or fraud, in which case, the amount so added shall be collected in the same manner as the tax. SECTION 4. Sales Tax on Imported Articles . (a) ADVANCE PAYMENT BY THE IMPORTER . When articles are imported, the percentage taxes established in Sections 194, 195, 196, 197, 198, 199 and 201 of the National Internal Revenue Code shall be paid in advance by the importer prior to the release of such articles from customs custody. (b) COMPUTATION OF THE ADVANCE SALES TAX . The advance sales tax is computed by multiplying the total landed cost plus mark-up by the tax rate applicable to the article imported. A mark-up of one hundred per centum (100%) is added to the total landed cost of articles enumerated in Sections 194 and 195; fifty (50%) per centum in the case of articles enumerated in Sections 196 and 197; and twenty-five per centum (25%) in the case of articles covered by Sections 198, 199 and 201. (c) DETERMINATION OF THE " HOME CONSUMPTION VALUE OR PRICE ". The home consumption value or price shall be the value or price declared in the consular, commercial, sales or trade invoice, certified to as correct under penalties of perjury by the Philippine Consul at the port of origin if there is any. Where there exists a reasonable doubt as to the value or price of the imported article declared in the entry, the correct value of the article shall be ascertained from the reports of revenue and/or commercial attaches and other diplomatic officers and from such other information that may be available to the Bureau of Customs. From the available data, the Commissioner of Customs shall ascertain and establish the home consumption value of articles exported to the Philippines and shall publish such lists of values from time to time. When the dutiable value cannot be ascertained for failure of the importer to produce the documents covering the importation or where there exists a reasonable doubt as to dutiable value of the imported articles declared in the entry, the basis of valuation shall be the domestic wholesale selling price of such or similar articles in Manila or other principal markets in the Philippines on the date the tax becomes payable on the articles in the usual wholesale quantities and in the ordinary course of trade, minus 1) Twenty (20%) percent thereof for expenses and profits: and (2) Duties and taxes paid thereon. (d) TRANSFER OF IMPORTATIONS BEFORE RELEASE FROM CUSTOMS' CUSTODY . The advance sales tax shall be collected in all cases where the original importer sold, transferred, or negotiated the imported articles to third persons before release of such articles from Customs' custody, regardless of the tax status of the original importer and the indorsee or transferee, the same to be paid by the transferee and/or indorsee. (e) PURCHASERS DEEMED IMPORTERS . In the case of tax-free articles brought or imported into the Philippines by persons, entities or agencies exempt from the advance sales tax which are subsequently sold, transferred, or exchanged in the Philippines to non-exempt private persons or entities, the purchasers shall be considered the importers thereof. The tax due on such articles shall constitute a lien on the article itself superior to all other charges or liens irrespective of the possessor thereof. (f) EXEMPTION FROM THE ADVANCE SALES TAX . The advance sales tax shall not apply to articles to be used by the importer himself in the manufacture or preparation of articles subject to specific tax: Provided, however , That where the National Economic and Development Authority certifies to the availability of local raw materials of sufficient quantity, comparable quality and price to meet the needs of manufacturers subject to specific tax, the importation of such raw materials shall be subject to advance sales tax. cdt (g) ILLUSTRATIONS . Computation of Advance Sales Tax, Manner of Invoicing and Determination of Sales Tax Liability of a Manufacturer are shown in the attached "Annex A" which forms an integral part of these Regulations. SECTION 5. Computation Percentage Tax on Sales . (a) Imposition of the Percentage Tax On Sales . The percentage tax imposed on the sale of articles covered by Sections 194, 196, 197, 198, 199 and 201 of the National Internal Revenue Code of 1977 as amended by Presidential Decree No. 1358, is levied, assessed and collected once only on every original sale, barter, exchange or similar transaction for nominal or valuable consideration intended to transfer ownership of, or title to, the articles or products sold, bartered or exchanged. The tax shall be paid by the manufacturer or producer of said articles or products. (b) Tax based on gross sales or output . The percentage tax on sales is computed by multiplying the gross selling price or gross value in money of the articles sold, bartered, exchanged or transferred or the gross value of output actually removed from the factory or mill warehouse by the rate of tax applicable to the particular class or category of the article sold, bartered, exchanged or transferred or removed from the factory or mill warehouse. In computing the base of the tax, discounts may be allowed as a deduction from the gross selling price provided said discounts are given at the time of the sale and are expressly indicated in the sales invoices. (c) Tax Credit . When the manufacturer pays the sales tax computed above after the end of the quarter, he is given a tax credit for any percentage, specific or mining tax paid under Title IV, V or VII of the National Internal Revenue Code on domestically manufactured, processed or produced, or imported raw materials, parts, accessory or other article forming part of the finished products he sold. In case the sales tax paid on the raw material, part, accessory or other article exceeds the amount of the sales tax due on the finished product, the excess shall be credited against the sales tax liabilities of the manufacturer for the succeeding taxable quarter or quarters. However, the manufacturer can avail of the benefits of this tax credit only if the amount of the tax on the raw materials, part, accessory or other articles used by him in producing his finished products is indicated as a separate item in the sales invoices of his suppliers. A manufacturer whose source of raw materials, parts or accessories is a dealer (who is not required to pay a percentage tax on his sales), may avail of the benefit of tax credit if such dealer billed said manufacturer separately for any percentage, mining or specific tax previously billed separately to the dealer. Whenever the finished product subject to sales tax is manufactured or produced out of any raw material, part, accessory, or other article which is exempt, totally or partially, from tax, the manufacturer is also given a tax credit equal to the amount deemed to have been paid by the exempt producer or manufacturer. The amount deemed to have been paid is the amount of sales tax that would have been paid by the exempt producer or manufacturer if he were not given tax exemption privileges. The tax credit privilege pertaining to a manufacturer-exporter is provided for under Section 202 of the Tax Code and Section 7 of these Regulations. (d) Computation of Sales When Tax is Billed as a Separate Item in the Invoice . In the computation of the sales tax imposed under Sections 194, 196, 197, 198, 199 and 201 of the Tax Code, in relation to General Circular No. 431, if a manufacturer or producer, in fixing the gross selling price of an article sold by him, has included an amount intended to cover the sales tax in the gross selling price of the article, the sales 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. Unless billed to the purchaser as a separate item in the invoice, the amounts intended to cover the sales tax shall be considered as part of the gross selling price of the article sold, and deduction thereof will not be allowed. To illustrate: "A" Knitting Company purchased yarn from the ABC Spinning Mills Corporation under the following invoice: ABC SPINNING MILLS CORPORATION No. 1 Tanque, Paco, Manila Invoice No. 00001 July 1, 1978 SOLD TO: "A" Knitting Company, Malabon, Rizal 1000 kilos yarn at P10.00 per kilo P10,000.00 10% Sales Tax 1,000.00 _________ Total P11,000.00 ======= In the above example, the gross selling price for purposes of the percentage tax on sales is P10,000.00. When "A" Knitting Company pays his sales tax liability on or before October 20, 1978, he can claim a tax credit of P1,000.00, the tax billed separately to him. Example No. 2 Same buyer and seller as above but sales tax is indicated as follows: Invoice No. 00001 July 1, 1978 SOLD TO: "A" Knitting Company 1,000 kilos yarn P11,000.00 (Sales Tax of 10% included) _________ Total P11,000.00 ======== In this example, the sales tax is not billed separately. The gross selling price for purposes of the sales tax is P11,000.00. "A" Knitting Company cannot claim tax credit on the tax on raw materials he used when he pays his sales tax on or before October 20, 1978. Other illustrations on the manner of invoicing purchases of raw materials and computing sales tax liability of the manufacturer are shown in illustration Nos. 2, 3, 4, 5, 6 and 7 shown in Annex "A". SECTION 6. Classification of Articles and Their Corresponding Tax Rates . For purposes of the percentage tax on sales, articles are classified into the following categories and are taxed at the corresponding rate for each category; I. Articles Enumerated Below Are Classified as Non-Essential Articles, Taxable at the Rate of 50% (Section 194, NIRC) A. 1. Jewelry, whether real or imitation; 2. Pearls; 3. Precious and semi-precious stones and imitation thereof; 4. Articles made of, or ornamented, mounted or fitted with, precious metals or imitations thereof or ivory Exceptions: a) Surgical and Dental Instruments; b) Silver plated wares; c) Frames or mounting for spectacles or eye-glasses; and d) Dental gold or gold alloys and precious metals used in filling, mounting or fitting of the teeth. 5. Opera glasses; and 6. Lorgnettes. The term "precious metals" shall include platinum, gold, silver, and other metals of similar or greater value. The term "imitation thereof" shall include platings and alloys of such "precious metals". B. 1. Perfumes; 2. Essences; 3. Extracts; 4. Toilet waters; 5. Cosmetics; 6. Hair dressings; 7. Hair dyes; 8. Hair restoratives; 9. Aromatic cachous; 10. Toilet powders. Exceptions: a) Tooth and mouth washes; b) Dentifrices; c) Tooth paste; d) Talcum; e) Medicated toilet powders; and f) Hair oils and pomades. C. 1. Dice; 2. Mahjong sets; 3. Playing cards; D. 1. Jukeboxes; and E. Similar or analogous articles, substances or preparations to those enumerated above as determined by the Secretary of Finance upon the recommendation of the Commissioner of Internal Revenue based on the inherent essentiality of the product. F. Any material, part or accessory of the abovementioned articles shall be taxed under this section. II. Articles Enumerated Below Are Classified as Semi-Essential Articles Taxable at the Rate of 25% . (Section 196, NIRC) A. The following articles, when made of leather or imitation leathers: 1. Luggage; 2. Trunks; 3. Valises; 4. Travelling bags; 5. Suitcases; 6. Satchels; 7. Overnight bags; 8. Hat boxes for use of travellers; 9. Beach bags; 10. Bathing suits bags; 11. Brief cases; 12. Salesman's sample and display cases; 13. Handbags; 14. Card, pass and key cases; Toilet cases and other cases, bags and kit, (without regard to size, shape, construction or material from which made) for use in carrying toilet articles or articles of wearing apparel. B. 1. Harpsichords; and 2. Accordions. C. 1. Firearms and cartridges or other forms of ammunitions; Exceptions : Sec. 202(d) ".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." D. 1. Electric, gas or oil water heaters; 2. Electric, gas or oil appliances of the type used for cooking, warming, or keeping warm food or beverage for consumption on the premises. Exceptions: Stoves and ranges. 3. Electric mixers; 4. Electric whippers; 5. Electric juicers; and 6. Household type electric vacuum cleaners or polishers. E. 1. Washing machines; 2. Cloth dryers; and 3. Combination washing machines and cloth dryers of all types. F. 1. Mechanical lighters G. 1. Textiles wholly or in chief value of silk, wool or linen; 2. Nylon or other synthetic and/or chemical fabrics. Exception: Nylon or other synthetic and/or chemical fabrics primarily intended for clothing. 3. Wool and silk hats; and 4. Furs and manufactures thereof. H. 1. Toys and playthings of all sorts. I. 1. Beverage coolers; ] ] 2. Ice cream cabinets; ] each having or being ] primarily designated 3. Water coolers; ]for use with a mechanical ] refrigerating 4. Food and beverage ] unit operated by storage cabinets ] electricity, gas, ] kerosene or other 5. Ice-making machines ] means. and ] 6. Mild cooler cabinets. ] J. Airconditioning units. K. Electricity and/or battery operated beauty equipments and accessories. L. 1. Pianos; and 2. Electric or electronic musical organ. M. Similar or analogous articles to those enumerated above, as determined by the Secretary of Finance upon recommendation of the Commissioner of Internal Revenue based on the inherent essentiality of the product. N. Any material, part or accessory of the above-mentioned articles shall be taxed under this Section. However, imported parts that are of common or general use such as copper tubes, metal sheets, screws, bolts, nuts or wires shall be taxed under Section 199. III. Articles Enumerated Below are Classified as Semi-Essential Articles Taxable in Accordance with the Following Schedules (Sec . 197, NIRC) A. Locally Manufactured Tax 1. Fountain pens and ballpens: -if the gross selling price a) Does not exceed P25.00 10% b) Over P25.00 but does not P2.50 plus 15% exceed P35.00 of excess over P25.00 c) Over P35.00 but does not P4.00 plus 20% exceed P45.00 of excess over P35.00 d) Over P45.00 P6.00 plus 25% of excess over P45.00 2. Chairs, sofas, beds, desks, show cases, bookcases, lockers, cabinets Exceptions: (1) filing cabinets; (2) medical chairs; and (3) dental chairs. -if the gross selling price: a) does not exceed P200.00 10% b) Over P200.00 but does not exceed P300.00 P20.00 plus 15% of excess over P200.00 c) Over P300.00 but does not exceed P400.00 P35.00 plus 20% of excess over P300.00 d) Over P400.00 P55.00 plus 25% of excess over P400.00 3. Watches, clocks, cases and movements thereof: -if the gross selling price: a) does not exceed P200.00 10% b) Over P200.00 but does not exceed P300.00 P20.00 plus 15% of excess over P200.00 c) Over P300.00 but does not exceed P400.00 P35.00 plus 20% of excess over P300.00 d) Over P400.00 P55.00 plus 25% of excess over P400.00 4. Electric fans and exhaust fans: -if the gross selling price a) does not exceed P200.00 10% b) Over P200.00 but does not exceed P300.00 P20.00 plus 15% of excess over P200.00 c) Over P300.00 but does not exceed P400.00 P35.00 plus 20% of excess over P300.00 d) Over P400.00 P55.00 plus 25% of excess over P400.00 5. Electric, gas and oil stoves and ranges: -if the gross selling price a) does not exceed P500.00 10% b) Over P500.00 but does not exceed P750.00 P50.00 plus 15% of excess over P500.00 c) Over P750.00 but does not exceed P1,000.00 P87.50 plus 20% of excess over P750.00 d) Over P1,000.00 P137.50 plus 25% of excess over P1,000.00 6. a) Phonographs or gramophones; b) Combination radio phonograph sets; c) Tape recorders; d) Video tape recorders; e) Car stereos; f) Tape decks; g) Cassette radio; and h) Similar articles for reproducing and/or recording music, sound and image. -if the gross selling price 1) Does not exceed P500.00 10% 2) Over P500.00 but does not exceed P750.00 P50.00 plus 15% of excess over P500.00 3) Over P750.00 but does not exceed P1,000.00 P87.50 plus 20% of excess over P750.00 4) Over P1,000.00 P137.50 plus 25% of excess over P1,000.00 7. a) Television sets; b) Combination radio and television sets; and c) Combination radio-phonograph- television sets. -if the gross selling price 1) Does not exceed P1,300.00 10% 2) Over P1,300.00 but does not exceed P1,600.00 P130.00 plus 15% of excess over P1,300.00 3) Over P1,600.00 but does not exceed P1,900.00 P175.00 plus 20% of excess over P1,600.00 4) Over P1,900.00 P235.00 plus 25% of excess over P1,900.00 8. Household type refrigerators and freezers -if the gross selling price a)does not exceed P1,900.00 10% b) Over P1,900.00 but does not exceed P2,300.00 P190.00 plus 15% of excess over P1,900.00 c) Over P2,300.00 but does not exceed P2,700.00 P250.00 plus 20% of excess over P2,300.00 d) Over P2,700.00 P330.00 plus 25% of excess over P2,700.00 9. Similar or analogous articles to those mentioned above, as determined by the Secretary of Finance upon the recommendation of the Commissioner of Internal Revenue based on the inherent essentiality of the product, shall be subject to their respective classifications and rates as indicated above. 10. Locally manufactured materials, parts and accessories shall be taxed at ten percent (10%). B. Imported Articles : When the articles mentioned above are imported, the tax shall be twenty-five (25%) per centum of landed cost plus mark-up. Likewise, imported finished or semi-finished parts such as doors, bodies and casings, shelves, electric fan blades, stands or motors shall be taxed at twenty-five (25%) per centum of landed cost plus mark-up. However, imported materials and parts that are of common or general use such as copper tubes, metal sheets, screws, bolts, nuts or wires shall be taxed under Section 199 . IV. Agricultural Products : Local and Imported : A. Locally produced agricultural food products, including ordinary salt and all kinds of fish and its by-products, whether in their original state or not 1% Exception : Agricultural food products mentioned in Sections 201 and 203 of the Tax Code. B. Imported Agricultural food products whether in their original state or not 10% of landed cost plus mark-up. C. Agricultural non-food products, whether in their original state or not when sold, bartered or exchanged by the producer or owner of the land where produced. 1% Except: Agricultural non-food products subject to Section 203 of the Tax Code. D. Imported Agricultural non-food products, whether in their original state or not 10% of landed cost plus mark-up. The phrase "whether in their original state or not" means the transformation of said products by the application of simple processes to preserve or otherwise prepare said products for the market, such as freezing, drying, salting, smoking or stripping. V. Articles classified as ordinary articles, taxable at the rate of 10% (Section 199, Tax Code) : A. Articles not covered in Sections 194, 195, 196, 197, 198 and 201 of the Tax Code; B. Articles specifically excepted under Section 194 of the Tax Code: 1. Surgical and dental instruments; 2. Frames or mounting for spectacles or eyeglasses; 3. Dental gold or gold alloys and precious metals used in filling or fitting of the tooth; 4. Tooth and mouth washes; 5. Dentifrices; 6. Toothpaste; 7. Talcum; 8. Medicated toilet powders; and 9. Hair oils and pomades. C. Articles specified in Section 195 of the Tax Code: 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; and imported and locally manufactured spare parts and accessories with which automobiles are usually equipped shall be subject to tax under Section 199: PROVIDED, That, imported and locally manufactured parts and accessories of automobiles which are principally for ornamentation or embellishments; and imported standard automobile parts and accessories certified by the Board of Investments as being locally manufactured and available in sufficient quantity and comparable quality and price shall be subject to a tax of 70% of landed cost, plus mark-up. 2. Motor vehicles classified as trucks and jeeps. D. Articles specifically excepted under Section 196 of the Tax Code. 1. Nylon or other synthetic and/or chemical fabrics primarily intended for clothing. E. Articles specifically excepted under Sec. 197 of the Tax Code: 1. Filing cabinet; 2. Medical chairs; and 3. Dental chairs. F. Any part or accessory of the above-mentioned articles. VI. Articles Enumerated Below are Classified as : Essential Commodities, Taxable at the Rate of 5% (Sec. 201, Tax Code) A. Locally processed meat, milk, fish and other sea foods; B. Wheat flour; C. Locally manufactured medicine; D. Locally manufactured laundry soap and detergents; E. Locally manufactured writing pads, notebooks and ordinary lead pencils; F. Poultry, swine and cattle feeds; and G. Cement. H. Any part or accessory of the above articles shall be taxed at 5%. VII. Manufacturer's/Miller's Percentage Tax at the Rate of 2% (Section 203, Tax Code) . A. Rope factories; B. Sugar Centrals; C. Coconut Oil Mills; D. Cassava Mills; and E. Desiccated Coconut factories. SECTION 7. Articles not subject to percentage tax on sales . The following shall be exempt from the percentage taxes imposed in Sections 194, 195, 196, 197, 198, 199 and 201: (a) Articles subject to tax under Title IV of the Tax Code. (b) Minerals and mineral products, whether in their original state or not, when sold, bartered, or exchanged by the lessee, concessionaire or owner of the mineral land from which removed. (c) Articles subject to tax under Section 203 of the Tax Code. (d) .22 Caliber firearms and cartridges as well as other forms of ammunitions 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. (e) Articles shipped or exported by the manufacturer or producer, irrespective of any shipping arrangement that may be agreed upon which may influence or determine the transfer of ownership of the articles so exported. Any percentage, specific or mining tax paid under this Title, Title IV or Title VII, respectively, on domestically manufactured or on imported raw materials used in the manufacture of finished products exported shall be allowed to be credited against other tax liabilities of the manufacturer-exporter: Provided, however, That the amount of the tax on the raw material, part, accessory, or other article shall be indicated as a separate item in the sales invoice. Sales to foreign tourists paid for in acceptable foreign currency directly made by manufacturers or producers shall be considered export sales if the articles purchased are actually brought out of the Philippines by the buyers upon their departure. SECTION 8. Manufacturer's or Miller's Percentage Tax . (a) Persons liable The persons subject to tax under this section are proprietors or operators of: 1. Rope factories; 2. Sugar centrals; 3. Coconut Oil Mills; 4. Cassava Mills; and 5. Desiccated Coconut Factories. (b) Rate of tax ; base . The rate of tax is two (2) per centum based on the actual selling price or market value of all the rope, sugar, coconut oil, cassava flour or starch, desiccated coconut, manufactured, processed or milled, including the by-products of the raw materials from which said articles are produced, processed or manufactured. The tax accrues from the time the articles leave the factory or mill warehouse, although payment thereof may be made not later than the twentieth (20th) day after the end of the quarter. "By-Products" refer to those materials which, in the cultivation or manufacture of any given commodity, remain over, and which possess or can be brought to possess a market value of their own. The by-products of the raw materials out of which the aforementioned enumerated articles are produced or manufactured are also subject to two per cent (2%) tax. Exceptions : The tax shall not apply to rope, coconut oil, and the by-products of copra from which it is produced or manufactured and Desiccated coconuts, if such rope, coconut oil, copra by-products and Desiccated coconuts are removed for exportation and are actually exported without returning to the Philippines, whether so exported in their original state or as an ingredient or part of any manufactured article or product. (c) Tax on share of planter or owner . In case the raw materials are processed, manufactured or milled in pursuance of a contract where the factory, central, or mill receives a share of the finished products, the tax on the share pertaining to the planter or owner of the raw materials shall be charged to the planter or owner and withheld by the proprietor or operator of the factory, central, mill and paid by him to the Commissioner. (d) Liability of proprietor or operator of a refined sugar factory: Tax Credit . A proprietor or operator of a refined sugar factory shall be subject to the tax imposed under this Section but any percentage tax paid on the raw sugar shall be credited against the tax due on the refined sugar. Moreover, when articles are manufactured out of materials subject to tax under this section, the percentage tax paid herein shall be credited against the sales tax due on the finished product. SECTION 9. Penal Provisions . Any person who shall fail to make a return or pay the percentage taxes prescribed in Sections 193(b), 194, 196, 197, 198, 199, 201 and 203 of the National Internal Revenue Code within the time prescribed in Section 193(a) of the same Code shall be punished by a fine not exceeding five thousand pesos and by imprisonment for a term not exceeding one year. Any person who shall make a false or fraudulent return shall, besides being liable to the surcharge prescribed in Section 193 of the Tax Code, be punished by a fine of not less than two thousand pesos but not more than ten thousand pesos and by imprisonment of not less than six (6) months but not more than six (6) years. Any person who shall violate any provision of these Regulations, for which violation the National Internal Revenue Code or any other law does not provide any specific penalty, shall be penalized under Section 337 of the aforesaid Code by a fine of not more than three hundred (P300) pesos or by imprisonment of not more than six (6) months, or both. SECTION 10. Transitory Provision . To provide for an effective enforcement of these Regulations, all taxpayers subject to the percentage taxes imposed in Sections 194, 196, 197, 198, 199 and 201 shall submit in duplicate to the Revenue District Officer of the place where their principal office is located not later than July 31, 1978 an inventory of their raw materials, parts, accessories, goods in process and finished goods as of June 30, 1978. The list shall contain the following information: a) Description of each item of inventory: b) Indications as to whether the item of inventory is directly imported or locally purchased or locally manufactured; c) Quantity; d) Unit Price; e) Total value; and f) Any percentage, specific or mining tax paid and the corresponding rate of such taxes. If the sales tax on an inventory item acquired on or before June 30, 1978 cannot be ascertained and/or was not billed separately in accordance with these regulations, a tax credit equivalent to the appropriate rate prescribed on the date the item was acquired may be imputed for purposes of computing the quarterly percentage tax on sales. SECTION 11. Repealing Provisions . All regulations, rulings or orders, or portions thereof issued in connection with the implementation of Title V of the National Internal Revenue Code of 1977 which are inconsistent with the provisions of these Regulations are hereby revoked. SECTION 12. Effectivity . Presidential Decree No. 1358 took effect upon its approval on April 21, 1978. However, the provisions thereof and these Regulations relating to the computation and payment of the quarterly percentage tax on sales shall take effect beginning July 1, 1978. CESAR VIRATA Secretary of Finance RECOMMENDING APPROVAL: EFREN I. PLANA Acting Commissioner of Internal Revenue TAN: P4519-F2828-A-8 ANNEX "A" ILLUSTRATIVE EXAMPLES Illustration No. 1 Computation of Advance Sales Tax Due on Importations Importations "A" Electronics Company of 1122 Rizal Avenue, Manila, imported 100 units of radio tubes, phonographs and clocks from the U.S. which arrived in the Port of Manila on July 2, 1978. The importation was covered by Import Entry No. 0001 dated July 2, 1978 and the corresponding customs duty and advance sales tax were paid on the same day as evidenced by Official Receipt No. 12345 (China Banking Corp.). 100 Units 100 Units 100 Units RADIO TUBES PHONOGRAPHS CLOCKS (Sec. 199) (Sec. 197-F) (Sec. 197-C) Home Consumption Value P1,000.00 P50,000.00 P20,000.00 10% of Home Consumption Value 100.00 5,000.00 2,000.00 Postage, Commission & Other Similar Charges 5.00 500.00 50.00 Customs Duty 110.00 5,500.00 2,200.00 TOTAL LANDED COST P1,215.00 P61,000.00 P24,250.00 ADD: 25% mark-up 303.75 - - - - 50% mark-up - - 30,500.00 12,125,00 TOTAL LANDED COST PLUS MARK UP P1,518.75 P91,500.00 P36,375.00 Multiply: Rate of Tax x 10% x 25% x 25% ADVANCE SALES TAX DUE AND PAID P151.88 P22,875.00 P9,093.75 Divided by: 100 Units + 100 + 100 +100 AS PAID PER UNIT P1.5188 P228.75 P90.9375 ============= ============= ============= Illustration No. 2 Manner of Invoicing Tax-Paid Importations to Dealers and to Manufacturers . Subsequently, "A" Electronics Company sold one-half of the above imported articles to "B" Appliance Co. of 680 C. M. Recto Avenue, Manila, a dealer in general merchandise, household appliances and spare parts. The other half to "C" Manufacturing Corp. of 123 Pasong Tamo, Makati, a manufacturer and assembler of stereo-radio-phonographs and television sets. The sales were respectively invoiced as follows: "A" ELECTRONICS COMPANY INVOICE NO. 0001 1122 Rizal Avenue, Manila July 5, 1978 Sold to: " B " Appliance Company Address: 680 C . M . Recto, Manila A.S.T Total Price Included Amount 50 units radio @P15 P674.06 P75.94 P750.00 50 units phonographs @P1,000 38,562.50 11,437.50 50,000.00 50 units clocks @P400 15,453.12 4,546.88 20,000.00 TOTAL P54,689.68 P16,060.32 P70,750.00 ========= ========= ======== "A" ELECTRONICS COMPANY INVOICE NO. 0002 1122 Rizal Avenue, Manila July 5, 1978 Sold to: " C " Manufacturing Corporation Address: 123 Pasong Tamo, Makati A.S.T. Total Price Included Amount 50 units radio @P15 P674.06 P75.94 P750.00 50 units phonographs @P1,000 38,562.50 11,437.50 50,000.00 50 units clocks @P400 15,453.12 4,546.88 20,000.00 TOTAL P54,689.68 P16,060.32 P70,750.00 ======== ======== ======== Advance Sales Tax Included: Importer: "A" Electronics Co., 1122 Rizal Avenue, Manila Import Entry No.: 0001 Date: 7-2-78 BIR File No. 20 O.R. No. 12345 Date Paid: 7-2-78 Bank: China Banking Illustration No. 3 Manner of Invoicing sale made by dealer of tax-paid imported articles, parts and accessories sold to a manufacturer . "B" APPLIANCE COMPANY INVOICE NO. 4000 680 C. M. Recto Ave., Manila July 7, 1978 Sold to: " C " Manufacturing Corporation Address: 123 Pasong Tamo, Makati A.S.T. Total Price Included Amount 50 units radio tubes @ P18.75 P861.56 P75.94 P937.50 50 units phonographs @P1,200 48,562.50 11,437.50 60,000.00 50 units clocks @P500 20,453.12 4,546.88 25,000.00 TOTAL P69,877.18 P16,060.32 P85,937.50 ======== ======== ======== Advance Sales Tax included: Importer: "A" Electronics Co., 1122 Rizal Avenue, Manila Import Entry No. 0001 Date: 7-2-78 BIR File No. 20 O.R. No. 12345 Date Paid: 7-2-78 Bank: China Banking Illustration No. 4 Sales Tax Liability of manufacturer using tax-paid imported articles, materials, parts and accessories . "C" Manufacturing Corporation assembled 100 sets of radio-clock-phonograph combinations using the above articles, materials, parts and accessories purchased from "A" Electronics and "B" Appliances. Assuming that no other articles, materials, parts or accessories duly qualified for tax credit and that 70 sets of the finished products were sold during the taxable period, the sales tax liability of "C" Manufacturing Corporation is computed as follows: Gross selling price of 70 sets combination radio/clock-phono-TV @ P6,000 each P420,000.00 ========= Sales tax due thereon: Sec. 197(G) First P1,900 P235.00 P4,100 (6,000 1,900) x 25% 1,025.00 Tax due per unit P1,260.00 x 70 P88,200.00 Less: Tax Credits Under Invoice #5000 dated 7-18-78 issued by "C" Manufacturing Co. P27,125.00 A.S.T paid on 70 units TV sets per Import Entry No. 0003 35,000.00 10% Tax "Deemed Paid" on 70 cabinets (14,000 x 10%) 1,400.00 63,525.00 SALES TAX DUE & COLLECTIBLE P24,675.00 ======== Illustration No. 7 Sales tax due on articles manufactured out of articles subject to tax under Section 203 . Gross selling price of refined sugar P10,000.00 2% milling tax due thereon P200.00 Less: Tax Credit centrifugal sugar at P7,500 x 2% 150.00 TAX STILL DUE AND PAYABLE P50.00 ======