Prescribing the rules for the implementation of Executive Order No. 960 imposing an ad valorem tax on cigarettes in addition to the specific tax levied thereon

August 15, 1984 REVENUE REGULATIONS NO. 10-84 SUBJECT : P rescribing the rules for the implementation of Executive Order No. 96 0 imposing an ad valorem tax on cigarettes in addition to the specific tax levied thereon TO : All Internal Revenue Officers and Others Concerned SECTION 1 . Scope . Pursuant to the provision of Section 326, in relation to Section 186-A, Chapter IV of Title IV of the National Internal Revenue Code of 1977, as amended, these regulations are hereby promulgated to implement the provisions thereof. SECTION 2 . Words and Phrases Defined . For purposes of these regulations, the following words and phrases shall be taken in the sense and extension indicated below: (a) Ad valorem . The ad valorem tax on cigarettes is an additional levy to the specific tax imposed under Section 149(b) of the Tax Code, equivalent to a specific percentage of the manufacturer's or importer's gross selling or wholesale price, net of the specific tax paid thereon. casia (b) Gross Selling or Wholesale Price . It is the price at which the different brands of cigarettes are sold in the factory or in the establishment of the importer or through their sales agent or through another establishment of which the manufacturer or importer is the owner or in the profit of which he has an interest. (c) Maximum Retail Price . Shall mean the suggested upper limit of the price per pack of cigarettes to be paid by the consumers or end-users thereof which price exclusive of ad valorem tax constitutes the basis in determining the specific tax rate corresponding to a particular class of cigarettes as prescribed under Section 149(b) of the Tax Code. (d) Sales Agent . Is a sales representative of the cigarette manufacturer or importer under an employer-employee relationship or of another establishment of which the manufacturer or importer is the owner or has an interest in the profit thereof. SECTION 3 . Filing of Manufacturer's Declaration . Every manufacturer of cigarettes is required to file with the Commissioner, on or before the last working day of January of each year and every six (6) months thereafter, or as often as may be required by the Commissioner, a sworn statement showing among others, the brand or brands of cigarettes manufactured, the approved maximum retail prices per pack, the gross selling or wholesale prices and the costs of manufacture thereof which shall include the expenses incurred or to be incurred until the cigarettes are finally sold. Provided, further, that said sworn statement shall be filed upon registration of any new brand of cigarettes or whenever there is any change in the maximum retail price, gross selling or wholesale price of any existing brand of cigarettes. SECTION 4 . Computation of the ad valorem tax on locally manufactured cigarettes . The computation of the ad valorem tax on locally manufactured cigarettes shall be as follows: (a) Find out the maximum retail price per pack of the cigarettes to establish the specific tax rate of the same in order to determine the amount of specific tax to be paid thereon; (b) Find out the gross selling or wholesale price of the cigarettes and deduct therefrom the specific tax on the cigarettes to arrive at the wholesale price, net of the specific tax; and aisa dc (c) On the wholesale price, net of specific tax, there shall be levied, assessed and collected the ad valorem tax of ten (10%) per centum . ILLUSTRATION : CASE I. Compute the ad valorem tax on one (1) case of "Manhattan King" cigarettes containing fifty (50) cartons of ten (10) packs each, with a maximum retail price of P6.50 per pack and with a registered wholesale price of P5.40 per pack. Under Section 149(b) of the Tax Code, cigarettes with a maximum retail price of P6.50 per pack fall under the specific tax classification of P64.00 per thousand. (a) Compute the Specific Tax on the one case : One case = 50 cartons x 10 packs = 500 packs x 20 sticks = 10,000 sticks = 10,000 sticks /1000 = 10 x P64.00 = P640.00 Specific tax on one case (b) Compute the Wholesale Price on the one case : = 50 cartons x 10 packs = 50 packs x P5.40 = P2,700.00 Wholesale price (c) Deduct the Specific Tax from the Wholesale Price : = P2,700.00 Wholesale Price - 640.00 Specific Tax P2,060.00 Wholesale Price, net of specific tax (d) Compute the Ad valorem Tax : = P2,060.00 Wholesale Price, net of Specific Tax x .10 Rate of Ad valorem Tax P206.00 Ad valorem Tax due on one case SECTION 5 . Manner of payment of the ad valorem tax . Every registered manufacturer of cigarettes shall pay before the removal of his cigarettes from the place of manufacture the ad valorem tax due thereon to the Commissioner of Internal Revenue in cash or in Manager's Check, through the "Payment Order" system of tax payment; or for his convenience, he may pay in advance in cash or in Manager's Check to the Commissioner of Internal Revenue, through the "Payment Order" system of tax payment, in amounts sufficient to cover the ad valorem tax due on the volume of his daily removals. For this purpose, a special book shall be kept by the manufacturer jointly with the Revenue Inspector assigned in his factory wherein to record these advance ad valorem tax payments. Accordingly, the first advance payment by the manufacturer for his ad valorem tax liability shall constitute as a debit entry in said book from where the ad valorem tax application shall be deducted and shall constitute as a credit entry in the same book. A balance of the advance payment, if any, shall be struck after every such tax application in order to keep a running account of the same. No removals shall be allowed unless the ad valorem tax is first paid thereon or unless there is sufficient balance of ad valorem tax to be applied thereon, even if the specific tax due thereon has been paid by reason of the affixture and cancellation of the requisite strip stamps. In order that a debit entry may be made in the special book prescribed herein to record an advance payment of the ad valorem tax, the manufacturer must show the original of the Payment Order and the Bank's Confirmation Receipt issued therefor to the Revenue Inspector assigned in his factory who shall sign legibly his name at the back thereof and retaining always a xerox copy of every such Payment Order and Confirmation Receipt for his file and which he will submit weekly to the Chief, Tobacco Tax Division on the first working day following the week. To confirm ad valorem tax payments or applications on every removal of cigarettes, the amount so paid must be indicated in the sales or delivery invoice covering every such removal duly validated by the Revenue Inspector assigned in the factory by affixing his signature in the sales or delivery invoice which he shall return copy of the same to be submitted weekly to the Chief, Tobacco Tax Division on the first working day following the week. casia SECTION 6 . Computation of the Ad valorem Tax on Imported Cigarettes . Every importer of cigarettes shall file with the Commissioner of Internal Revenue a sworn statement showing among others, the different brands of imported cigarettes and their corresponding wholesale prices, together with the cost of importation, plus the expenses incurred or to be incurred until finally sold and to be accompanied by verified sales invoice of the manufacturer of the cigarettes and the consular invoice issued by the Philippine Consul. These information must be submitted by the importer to the Commissioner of Internal Revenue before the removal of the imported cigarettes from customs custody. Based on these declared or registered wholesale prices of imported cigarettes, an ad valorem tax equivalent to ten (10%) per centum, after deducting the specific tax paid, shall be levied, assessed and collected. ILLUSTRATION : CASE II. Compute the ad valorem tax on one (1) case of imported "Salem" cigarettes containing fifty (50) cartons of ten (10) packs each which has a declared or registered wholesale price of P8.00 per pack. Under Section 149(b) of the Tax Code, cigarettes of foreign manufacture fall under the specific tax classification of P121.00 per thousand regardless of their maximum retail prices. SOLUTION: (a) Compute the Specific Tax on the one case : One case = 50 cartons x 10 packs = 500 packs x 20 sticks = 10,000 sticks = 10,000 sticks /1000 = 10 x P121.00 = P1,210.00 Specific tax on one case (b) Compute the Wholesale Price on one case : = 50 cartons x 10 packs = 500 packs x P8.00 = P4,000.00 Wholesale price (c) Deduct the Specific Tax from Wholesale Price : = P4,000.00 Wholesale Price per case - 1210.00 Specific Tax paid P2,790.00 Wholesale Price, net of specific tax, of one case (d) Compute the Ad valorem Tax : = P2,790.00 Wholesale Price, net of Specific Tax x .10 Rate of Ad valorem Tax P 279.00 Ad valorem Tax due SECTION 7 . Manner of payment of the ad valorem tax on imported cigarettes . Every importer or owner of imported cigarettes shall pay to the customs officer, conformably with the existing regulations of the Ministry of Finance and these regulations, the ad valorem tax thereon before their release from customs custody. The importer or owner of the imported cigarettes shall furnish the internal revenue officer assigned to supervise the release thereof with a copy of the official receipt covering the ad valorem and specific tax payments together with other pertinent shipping documents and the same shall be submitted to the Chief, Tobacco Tax Division together with the report of supervision. SECTION 8 . Specific Limitation on the Wholesale Price . The manufacturer's or importer's wholesale price of cigarettes subject to the herein ad valorem tax shall in no case be less than the prevailing wholesale price exclusive of specific tax registered with the Bureau of Internal Revenue prior to the effectivity of these regulations. SECTION 9 . Effects of Ad valorem Tax on the Specific Tax . The additional ad valorem tax imposed herein shall in no case alter, modify or affect the classification of cigarettes for specific tax purposes and, therefore the specific tax rate corresponding to a particular class of cigarettes, now registered or in the market, shall not in any case be moved or adjusted to a higher specific tax bracket by reason of the additional ad valorem tax. SECTION 10 . Verification of tax payments and costs . Periodic verification shall be caused to be made by the Chief, Tobacco Tax Division to insure accurate and prompt payment by the manufacturers and importers of the ad valorem tax on cigarettes as well as their registered costs. SECTION 11 . Penalties . The penalties and liabilities prescribed under the pertinent provisions of Title IV of the Tax Code relative to the payment of specific tax on cigarettes as shall likewise apply in the case of ad valorem tax imposed herein. cdt SECTION 12 . Repealing Clause . All regulations, orders, and other issuances, or portions thereof, inconsistent with the provisions of these regulations are hereby revoked or modified accordingly. SECTION 13 . Effectivity . These regulations shall take effect on September 1, 1984. CESAR E. A. VIRATA Minister of Finance Recommending Approval: RUBEN B. ANCHETA Acting Commissioner