Prescribing the rules for the implementation of Executive Order No. 978 imposing an ad valorem tax on cigarettes and revising the specific tax rates and maximum retail prices thereof

August 15, 1984 REVENUE REGULATIONS NO. 10-A-84 SUBJECT : Prescribing the Rules for the Implementation of Executive Order No. 978 Imposing an Ad Valorem Tax on Cigarettes and Revising the Specific Tax Rates and Maximum Retail Prices Thereof TO : All Internal Revenue Officers and Others Concerned SECTION 1 . Scope . Pursuant to the provisions of Section 326, in relation to Section 149(b), Chapter I and Section 186-A, Chapter IV, both of Title IV of the National Internal Revenue Code, 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 Tax . 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. (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 upper limit of the price per pack of cigarettes to be paid by the consumers or end-users thereof which price constitutes the basis in determining the specific tax rate to be levied on a particular class of cigarettes are prescribed under Section 149(b) of the Tax Code. (d) Sales Agent . Is a sales representative of the cigarette manufacturer or importer under an employee-employer relationship or of another establishment of which the manufacturer or importer is the owner or has an interest in the profit thereof. SECTION 3 . Revised Specific Tax Rates and Maximum Retail Prices of Cigarettes . The specific tax rates and maximum retail prices of cigarettes are hereby revised as follows: (a) Cigarettes Packed in Thirties: Existing Max. Revised Max. Retail Price Existing Rates New Rates Retail Price P1.60 or less P3.00/M shall be P3.50/M P2.00 or less 1.61 - P2.00 5.00/M " " 6.00/M 2.01 - P2.40 Over 2.00 8.00/M " " 9.00/M Over P2.40 (b) Cigarettes Packed in Twenties: Existing Max. Revised Max. Retail Price Existing Rates New Rates Retail Price P3.65 or less P20.00/M shall be P25.00/M P4.50 or less 3.66 - P4.50 28.00/M " " 35.00/M 4.51 - P5.60 4.51 - 5.50 32.00/M " " 40.00/M 5.61 - 6.80 5.51 - 6.00 46.00/M " " 57.50/M 6.81 - 7.50 6.01 - 6.50 64.00/M " " 80.00/M 7.51 - 8.00 6.51 - 7.30 91.00/M " " 114.00/M 8.01 - 9.00 Over 7.30 121.00/M " " 151.00/M Over - 9.00 (c) Imported Cigarettes: Existing Rate New Rate P121.00/M shall be P151.00/M Illustration on the application of New Rates : Cigarettes falling under the tax brackets of P20.00/M, P28.00/M and P32.00/M before the effectivity of Executive Order No. 978 shall fall under the new tax brackets of P25.00/M, P35.00/M and P40.00/M, respectively. cdt SECTION 4 . 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 price and the cost 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 specific tax rate, maximum retail price, gross selling or wholesale price of any existing brand of cigarettes. SECTION 5 . 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 due thereon to arrive at the wholesale price, net of the specific tax, and (c) On the wholesale price, net of specific tax, there shall be levied, assessed and collected the ad valorem tax of two (2%) per centum on cigarettes packed in thirties; and four (4%) per centum on local cigarettes packed in twenties, as well as, on imported cigarettes irrespective of the contents per pack. ILLUSTRATIONS : CASE I. Cigarettes Packed in Thirties: Compute the ad valorem tax on one (1) case of "three Chicks" cigarettes packed in thirties containing twenty rolls of twenty five packs of thirty sticks each, with a maximum retail price of 2.40 per pack and with a registered wholesale price of P2.10 per pack. Under Section 149(b) of the Tax Code, as amended, cigarettes packed in thirties with a maximum retail price of P2.40 per pack falls under the specific tax classification of P6.00 per thousand sticks. (a) Compute the specific tax on one case : One case = 20 rolls x 25 packs = 500 packs x 30 sticks = 15,000 sticks = 15,000 sticks /1000 = 15 x P6.00 = P90.00 Specific tax due (b) Compute the wholesale price per case : One case = 20 rolls x 25 packs = 500 packs x 2.10 = 1,050.00 sticks /1000 = 15 x P6.00 = P90.00 Wholesale Price Per case (c) Deduct the specific tax from the wholesale price per case : = P1,050.00 Wholesale Price - 90 Specific Tax P 960.00 Wholesale Price, net of Specific Tax (d) Compute the Ad valorem Tax : cd i = P960.00 Wholesale Price, net of Specific Tax x .02 Rate of Ad valorem Tax P 19.20 Ad valorem Tax per case CASE II. Cigarettes Packed in Twenties : 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 P8.00 per pack and with a registered wholesale price of P7.60 per pack. Under Section 149(b) of the Tax Code, cigarettes with a maximum retail price of P8.00 per pack fall under the specific tax classification of P80.00 per thousand sticks. (a) Compute the specific tax on one case : One case = 50 cartons x 10 packs = 500 x 20 sticks = 10,000 sticks = 10,000 sticks /1000 = 10 x P80.00 = P800.00 Specific tax on one case (b) Compute the Wholesale Price on one case : One case = 50 cartons x 10 packs = 500 packs x P7.60 = P3,800.00 Wholesale Price (c) Deduct the Specific Tax from the Wholesale Price : = P3,800.00 Wholesale Price - 800.00 Specific Tax P3,000.00 Wholesale Price, net of specific tax (d) Compute the Ad valorem Tax : = P3,000.00 Wholesale Price, net of Specific Tax _ x .04 Rate of Ad valorem Tax P 120.00 Ad valorem Tax due on one case SECTION 6 . 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 payments; 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 or unless there is sufficient balance of ad valorem tax to be applied thereon, even if the specific tax due had 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 together with the Payment Order and Confirmation Receipt numbers, 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 the very invoice of which he shall prepare an abstract to be submitted weekly to the Chief, Tobacco Tax Division on the first working day following the week. cd i SECTION 7 . 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 four (4%) per centum , after deducting the specific tax paid, shall be levied, assessed and collected. ILLUSTRATION : CASE III. 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 P20.00 per pack. Under Section 149(b) of the Tax Code, cigarettes of foreign manufacture fall under the specific tax classification of P151.00 per thousand regardless of their maximum retail prices. SOLUTION : (a) Compute the Specific Tax on one case : One case = 50 cartons x 10 packs = 500 x 20 sticks = 10,000 sticks = 10,000 sticks /1000 = 10 x P151.00 = P1510.00 Specific tax due (b) Compute the Wholesale Price on one case : One case = 50 cartons x 10 packs = 500 packs x P20.00 = P10,000.00 Wholesale Price (c) Deduct the Specific Tax from the Wholesale Price : = P10,000.00 Wholesale Price - 1,510.00 Specific Tax P 3,000.00 Wholesale Price, net of specific tax (d) Compute the Ad valorem Tax : = P 8,490.00 Wholesale Price, net of Specific Tax _ x .04 Rate of Ad valorem Tax P 339.60 Ad valorem Tax due SECTION 8 . 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 9 . Specific tax 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 registered with the Bureau of Internal Revenue prior to the effectivity of these regulations. SECTION 10 . Recording of payments of ad valorem tax . The A-5 Official Register Book of manufacturers of cigarettes must also show the amount of ad valorem tax paid on all cigarettes manufactured and transferred from the credit side of the L-7 Official Register Book. SECTION 11 . 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 12 . 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 shall likewise apply in the case of ad valorem tax imposed herein. SECTION 13 . 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 14 . Effectivity . The ad valorem tax shall take effect on September 3, 1984 and the revised specific tax rates and maximum retail prices shall take effect on October 1, 1984. ALFREDO PIO DE RODA Acting Minister of Finance Recommending Approval: RUBEN B. ANCHETA Acting Commissioner