Fixed tax and percentage tax regulations on original sales and ad valorem tax on automobiles

July 31, 1986 REVENUE REGULATIONS NO. 11-86 SUBJECT : Fixed Tax and Percentage Tax Regulations on Original Sales and Ad Valorem Tax on Automobiles TO : All Internal Revenue Officers and Others Concerned Pursuant to the provisions of Section 277 in relation to Section 4, both of the National Internal Revenue Code, as amended, these Regulations are hereby promulgated. SECTION 1 . Scope . These regulations shall govern the filing of quarterly percentage tax return and payment of the tax due thereon, the percentage tax on imported articles and locally manufactured products under the provisions of Sections 162, 162 and 168, the payment of fixed taxes under Sec. 161 of the National Internal Revenue Code, as amended, the compensating and advance sales tax, credits against sales taxes, and the ad valorem tax on automobiles. SECTION 2 . Definition of terms . In applying the provisions of these regulations the following words and phrases shall have the sense and meaning indicated below: (a) "Material" 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. aisa dc (b) "Part or accessory" any article adopted for use as a component part of another article or is a replacement part thereof, and not included in the definition of the term "material." (c) "Gross selling price or gross value in money" the total amount of money or its equivalent which the vendee pays to the vendor for the goods. (d) "Original sale" the first sale, barter, exchange or transfer of an article by the person liable to excise tax (specific and/or ad valorem ) or manufacturer's, producer's, importer's, miller's percentage tax. (e) "Person" any individual, a trust, estate, partnership, or corporation. SECTION 3 . Filing of percentage tax returns and payment of the tax due thereon . (a) Who shall file . (1) Every person conducting a business on which a percentage tax is imposed under Title V of the Tax Code (Sections 163, 164 a nd 16 8), other than the sales tax on subsequent sale, shall file a quarterly return of the amount of his gross sales, or gross value of output actually removed from the factory or mill warehouse within twenty days after the end of each taxable quarter. (2) Any person retiring from business subject to sales or miller's tax shall notify the nearest internal revenue officer, file his return and pay the tax due thereon within twenty days after closing his business. (b) Where to file . The return shall be filed in duplicate with the Revenue District Officer, Collection Agent or duly authorized Treasurer of the city or municipality where the taxpayer has his principal place of business, or in any other place where the Commissioner may authorize. (c) When to pay . The tax due shall be paid by the person subject thereto not later than the last day prescribed for filing the return. SECTION 4 . Sales tax on imported articles . (a) Advance sales tax . - The advance sales tax is imposed on the importation of goods, wares, or merchandise for sale, barter or exchange to be used as raw materials, parts or accessories in the preparation or manufacture of articles for sale, barter or exchange at the rates prescribed under Section 163 of the Tax Code. It shall be paid in advance by the importer prior to the release of such articles from customs custody. The tax shall be based on the total value used by the Bureau of Customs in determining tariff and customs duties, including customs duties and other charges. When the importer himself sells, barters, exchanges or transfers such imported articles, a sales tax on original sale at the rates prescribed under Section 163 shall be levied, assessed and collected based on the gross selling price or gross value in money of the articles so sold, bartered, exchanged or transferred. However, the sales tax due shall be reduced by the amount of advance sales tax paid on importation in the manner herein prescribed. The advance sales tax does not apply to articles to be used by the importer himself in the manufacture or preparation of articles subject to excise tax (except automobiles) under Title IV of the Tax Code. 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 excise tax, the importation of such raw materials shall be subject to advance sales tax. Any advance sales tax paid on any article imported prior to January 1, 1986 shall be considered as a final tax. Any imported article unsold as of December 31, 1985 which are subsequently sold by the importer himself without such article having undergone processing or manufacturing shall be considered as an original sale of a tax-paid article and therefore the corresponding sales tax on original sale shall no longer be imposed. Any unsold article imported by the importer himself prior to January 1, 1986 shall be separately indicated in the regular year-end inventory. All articles imported on or after January 1, 1986 when sold 'as is' by the importer himself, shall be subject to sales tax on original sale. (b) Compensating tax . (1) The compensating tax at the rates prescribed in Section 163 of the Tax Code is imposed on the importation of commodities, goods, wares, or merchandise which are neither for sale nor for use as raw materials, parts or accessories in the manufacture of products for sale. It shall be based on the total value used by the Bureau of Customs in determining tariff and customs duties including customs duty and all other charges. The tax due shall be paid before withdrawal of the said articles from customs custody. (2) Non-exempt persons or entities who are recipients or purchasers of tax free articles imported into the Philippines by persons, entities or agencies exempt from the tax shall be considered the importer thereof and shall be liable for the duty and internal revenue tax due on such importation. The tax due on such articles shall constitute a lien on the article itself, superior to all other charges or liens. cd i (3) If, at any time after importation of articles on which the compensating tax has been paid, such articles are sold, bartered, or exchanged 'as is' without having been used by such importer, he shall be considered as an original seller subject to sales tax under Section 163 of the Tax Code depending on the classification of the articles sold. The compensating tax paid by him may be credited to the extent of the sales tax due on the original sale only and in no case shall it result in a refund or an excess tax credit. If the articles are used as raw materials by the importer in the manufacture of the articles subject to sales tax, the compensating tax paid on the imported articles shall be credited against the manufacturer's sales tax due on the finished articles in the same manner as provided herein. (c) Applicability of new rates of advance sales or compensating tax . The rates prescribed under the Tax Code, as amended shall be applicable to all importations entered or withdrawn on or after August 1, 1986 as determined by the Bureau of Customs in accordance with the Tariff and Customs Code of the Philippines and its implementing regulations. SECTION 5 . Percentage tax on sales . (a) On original sale of imported, manufactured or produced articles or products . The percentage tax imposed by Section 163 of the Tax Code 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, producer, or importer of said articles or products. (b) Tax based on gross sales . The percentage tax on sales shall be determined by applying the appropriate rate of tax on the gross selling price or the gross value in money of the articles sold, bartered, exchanged or transferred. In computing the taxable base, discounts may be allowed as a deduction from gross selling price provided said discounts are given at the time of the sale and are expressly indicated in the sales invoice. Sales returns and allowances shall be allowed as deduction from gross sales in the period when such returns and allowances are made. If the returns or allowances exceed the gross sales for the period, the excess may be carried over to the succeeding period or periods. Sales on consignment shall be considered actually sold on the day of sale or sixty days after the date consigned, whichever is earlier. (c) Tax credit . (1) On original sale of manufactured products . Any excise, sales, or millers tax paid under Titles IV and V of the Tax Code on imported or domestically manufactured, processed or produced raw material, part accessory, or other article purchased during the taxable quarter and intended by the manufacturer for conversion into and to form part of a finished article for sale shall be credited against the sales tax due in the same taxable quarter: Provided , That the amount of the tax on the raw material, part, accessory, or other article is indicated as a separate item in the sales invoice. cd Any unused or accumulated tax credits may be availed of under the following options or any combination thereof, which in no case should exceed the unused tax credits: (i) Carry over such excess or a portion thereof to be credited against his sales tax liability in the succeeding taxable quarter or quarters; or (ii) File an application in accordance with Ministry Order No. 19-79 for the issuance of a tax credit certificate for such excess or a portion thereof which can be used in payment of his advance sales tax liability only; or (iii) Deduct from gross income for income tax purposes any excess tax credits or portion thereof as of the end of the taxpayer's taxable year. For this purpose, the deduction should be captioned "Excess Tax Credits." Options "i" and "ii" above, may be availed of at the end of any quarter. Option "iii" may be availed of for the taxable year just ended. The "Deferred Tax Credit" account shall be reduced by any of the following: (a) The amount of tax credit certificate applied for to be used in payment of his advance sales tax; (b) The amount of excess tax credits used as a deduction for gross income for income tax purposes; (c) The amount of tax credit corresponding to the raw materials, parts or accessories which are subsequently sold, transferred, disposed of, or for any other reason can no longer be used in the manufacture of the finished product for sale; (d) The amount of tax on the raw materials, parts, accessories, or other articles used in the manufacture of articles which are not for sale, such as samples and promotional give-always; (e) The amount of the tax credit certificate issued to a manufacturer-exporter in accordance with paragraph (b) of Section 166 of the Tax Code. (f) The amount of tax credit applied to sales tax payable. If the amount of the tax credits hereinabove required to be deducted exceeds the amount of total available 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. (2) On original sale of imported articles . Any advance sales tax paid by the importer shall be credited against the sales tax due on the sale of articles taxable under the same rate. If, for example, the imported various articles for which advance sales taxes were paid at the rates of 10%, 20% and 30%, the advance sales tax paid may be credited against the sales tax due on the sale of articles subject to the same rates, i.e., 10% to 10%, 20% to 20%, and 30% to 30% except in the case of raw materials sold to manufacturers who certify that they will be used in the manufacture of essential articles, in which case the advance sales tax paid at a higher rate shall be credited to the 10% sales tax due. For example, an importer paid advance sales tax of importation of articles at the rate of 20%. Upon sale of the imported articles, the purchaser or manufacturer certified that the said articles will be used in the manufacture of essential articles subject to 10% tax. The original sale by the importer of said imported articles shall be taxed at 10%, and credited with the corresponding advance sales tax payment. Any resulting excess advance sales tax paid on the transaction may be treated as follows: 1. The excess advance sales tax may be retained in the "Deferred Advance Sales Tax" account to be credited against subsequent sales tax due on sales of the article either at 20% or 10% as the case may be; or 2. The importer may request for the issuance of a tax credit certificate on the corresponding excess advance sales tax, which he may use in payment of his internal revenue taxes. He should however reduce his "Deferred Advance Sales Tax" to the extent of the tax credit given to him. For this purpose, the importer should maintain separate deferred accounts for advance sales tax payments according to tax rates. If, in any quarter, the advance sales tax payments exceed the sales tax due on the original sale of the imported articles, the excess shall be credited against the sales tax liability of the importer in the succeeding taxable quarter or quarters, or as provided above, if applicable. (3) Pioneer enterprise . In case the manufacturer is a pioneer enterprise registered from the payment of sales tax on original sale, the available tax credits during a taxable quarter shall first be applied to the gross sales tax due. The exemption is then deducted from the net sales tax due to arrive at the amount still payable. Example 2 hereunder illustrates the method of computing the sales tax due from a manufacturer who is 20% exempt from the payment of sales taxes. (4) On articles exported . Only the direct exporter (manufacturer or trader) may avail of the tax credit under the provisions of Section 166(b) of the Tax Code, subject to the following conditions: (i) That the tax credit shall be for excise, sales, miller's or advance sales tax actually paid or passed on for purchase of domestically manufactured or imported raw materials used in the manufacture and forming part of the finished products exported; (ii) That the finished products exported are subject to tax under Section 163(1), (2) and (4) of the Tax Code, if domestically sold; (iii) That the amount of the tax on the locally purchased raw material, part or accessory is indicated as a separate item in the sales invoice of the supplier from whom it was last purchased; and (iv) The tax credit may be applied against the sales tax liability of the manufacturer/exporter. If the manufacturer/exporter desires to apply the tax credit against his other internal revenue taxes, other than sales tax, he should file an application for the issuance of a tax credit certificate within one year from the close of the taxable year in which the export was effected. Upon receipt of the tax credit certificate, the "Deferred Tax Credit" account should be reduced by the amount of tax credit granted. An export trader shall apply for the issuance of a tax credit certificate under the same conditions herein stated. Export producers or traders registered with other government agencies granting a similar tax credit on export products should file their request for tax credit with the agency concerned. casia Illustrative Examples Example 1 : Assume that on January 1, 1986, a manufacturer has P100 as unapplied tax credits on 100 units at P10 per unit of raw material inventory. During the first quarter, he purchased 1000 units of raw materials at P15 per unit and manufactured 600 units into 600 units or ordinary finished articles which he sold for P30 per unit in the same quarter. During the second quarter, he purchased 200 units at P20 per unit of raw material and sold 400 units of raw material "as is" which he originally bought at P15 per unit. He used the remaining 300 units of raw material in manufacturing 300 units of finished articles which he sold for P35 per unit. Assuming further that the supplier separately billed the 20% tax on the raw materials (which is not included in the selling price) the manufacturer's sales tax and the amount payable by the manufacturer for the first and second quarters shall be computed as follows: FIRST QUARTER Sales Finished articles (600 units x P30) P18,000 ======= Gross sales due thereon at 20% P3,600 Less: Tax credits Unapplied tax credits, beginning P100 For current quarter Raw material purchases: Purchase price - 1000 units x P15 = P15,000 Tax separately billed (20%) 3000 Total tax credit P3,100 Net sales tax payable P500 ====== SECOND QUARTER Sales Finished articles (300 units x P35) P10,500 ====== Gross sale tax due thereon at 20% P2,100 Less: Tax credits Unapplied tax credits beginning None For current quarter Raw material purchases: Purchase price - 200 x P20 = P4,000 Separately billed tax (20%) 800 800 Net sales tax payable P1,300 ===== Tax credits on 400 units raw materials sold at P15: 400 units x P15 = P6,000 Rate of tax = 20% Tax credit on raw materials sold P1,200 Total amount payable P2,500 ======= Example 2 . Same conditions as in Example 1 except that the manufacturer is a BOI-registered pioneer enterprise entitled to 20% exemption. cdt FIRST QUARTER Sales Finished articles P18,000 ======= Gross sales tax due thereon 3,600 Less: Tax credits 3,100 Net sales tax payable 500 Less: BOI exemption (20%) 100 Amount still due P400 ===== SECOND QUARTER Sales Finished articles P10,500 ====== Gross sales tax due 2,100 Less: Tax Credits 800 Net sales tax due 1,300 Less: BOI exemption (20%) 260 Balance 1,040 Add: Sales tax on items already claimed (P1,200 x 80%) 960 Total amount still due P2,000 ====== Example 3 . An importer made the following purchases during the taxable quarter: Article A Article B Article C Amount Tax (10%) Amount Tax (20%) Amount Tax (30%) P150,000 P15,000 P100,000 P20,000 P100,000 P30,000 During the quarter he made the following sales: Article A Article B Article C S.P. TAX S.P. TAX S.P. TAX P200,000 P20,000 P140,000 P28,000 None Tax credits P15,000 P20,000 Tax due P5,000 P8,000 The accumulated advance sales tax of P30,000 on articles subject to tax at 30% cannot be credited to the tax due on the sale of articles subject to tax at 10% or 20%, except in the sale of raw materials certified for exclusive use in the manufacture of essential articles. Example 4 : At the end of the fourth quarter, manufacturer "A" had a deferred tax credit balance of P2,500,000. Situation 1 : He opted to carry over the amount to the succeeding quarter. In this case, manufacturer "A" will have a beginning balance in his "Deferred Tax Credit" account in the amount of P2,500,000 which he can use as a credit against his sales tax liability for the first quarter. Any excess may be carried over to the succeeding quarter or quarters until the end of his taxable year when he may again avail of his options if there are still unused tax credits as of the end of such taxable year. Situation 2 . He opted to apply for the issuance of a tax credit certificate for use in payment of his advance sales tax in the amount of P1,500,000 and the balance of P1,000,000 to be carried over to the succeeding quarter. In this case at the time of the option, he will reduce the P2,500,000 balance by P1,500,000. The remaining balance of P1,000,000 shall be carried over as the beginning balance of his "deferred tax credit" account under the same procedure as Situation 1. Situation 3 . He opted to file for the issuance of a tax credit certificate in the amount of P2,000,000 and use the balance of P500,000, thereby leaving no balance for the first quarter of the succeeding taxable year. If the amount of tax credit certificate approved and issued to him is less than the amount applied for, the difference shall be debited back to the "Deferred Tax Credit" account at the time of receipt of the tax credit certificate. For example if only P1,600,000 is approved on his application of P2,000,000, the difference of P400,000 shall be debited back to the deferred tax credit account. (d) Computation of tax base when tax is billed as a separate item in the invoice . In the computation of the sales tax imposed in Section 163 of the Tax Code, if the manufacturer, in fixing the gross selling price of an article sold by him, has included the 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, the amount intended to cover the sales tax shall be considered as part of the gross selling price of the article sold. To illustrate: Example 1 : "A" Knitting Company purchased yarn from ABC Spinning Mills Corporation under the following invoice: ABC SPINNING MILLS CORPORATION No. 1 Tanque, Paco, Manila Invoice No. 5001 August 1, 1986 SOLD TO: "A" Knitting Company Malabon, Metro Manila 1,000 kilos yarn at P10 per kilo P10,000 10% sales tax 1,000 Total P11,000 In the above example, the gross selling price for purposes of the percentage tax on sales is P10,000. When "A" Knitting Company pays its sales tax for the taxable quarter it can claim a tax credit of P1,000, the tax billed separately. Example 2 : Same buyer and seller as above but sales tax is indicated as follows: Invoice No. 5001 August 1, 1986 SOLD TO: "A" Knitting Company Malabon, Metro Manila 1,000 kilos yarn P11,000 (Sales tax of 10% included) Total P11,000 In this example, the sales tax is not billed separately. The gross selling price for purposes of the sales tax is P11,000. "A" Knitting Company cannot claim tax credit for this taxable quarter on this purchase because the tax is not separately billed. SECTION 6 . Classification of tax rates and 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 30% (Section 163[1] of the Tax Code). A. 1. All articles commonly or commercially known as jewelry, whether real or imitation, pearls, precious and semi-precious stones and imitations thereof; casia 2. 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 mountings for spectacles or eyeglasses, and (d) Dental gold or gold alloys and precious metals used in filling, mounting or fitting of teeth. 3. Opera glasses; and 4. Lorgnettes. The term "precious metals" shall include platinum, gold, silver and other metals of similar or greater value. The term "imitations thereof" shall include platings and alloys of such precious metals. B. 1. Perfumes, essences, extracts; 2. Toilet water; 3. Cosmetics; 4. Hair dressings, hair dyes, hair restoratives; 5. Aromatic cachous; and 6. Toilet powders. Exceptions : (a) Tooth and mouth washes; (b) Dentifrice; (c) Talcum and medicated toilet powders; and (d) Hair oils and pomades. C. 1. Dice; 2. Mahjong sets; and 3. Playing cards. D. Jukeboxes E. Automobiles Exception : Motor vehicles classified as trucks, jeeps and utility vehicles. A sale of an automobile shall be considered as a sale of the chassis and of the body together with the parts and accessories with which the same is usually equipped, including the other parts and accessories permanently attached thereto at the time of the original sale. F. Parts and accessories of automobiles which are primarily for ornamentation or embellishment. cd i G. 1. Yachts; and 2. Other vessels intended for pleasure or sports. H. 1. Harpsicords; 2. Accordions; 3. Pianos; and 4. Electric or electronic musical organs I. 1. Firearms; 2. Cartridges; and 3. Other forms of ammunition. J. 1. Household type electric vacuum cleaners; and 2. Household type electric polishers. K. All type of: 1. Washing machines; 2. Clothes dryers; and 3. Combination washing machines and clothes dryers. L. 1. Textiles wholly or in chief value of silk, wool or linen. 2. Nylon or other synthetic and/or chemical fabrics Exceptions : Nylon and other synthetic and/or chemical fabrics intended for clothing. 3. Wool and silk hats; and 4. Furs and manufactures thereof. M. Electricity and/or battery operated beauty equipment and accessories. N. Electricity and/or battery operated toys O. 1. Television sets; 2. Phonographs or gramophones; 3. Combination radio phonograph set; 4. Tape recorders; 5. Video tape recorders; 6. Tape decks; 7. Car stereos; 8. Cassette radios; and 9. Similar articles for reproducing and/or recording music, sound and images and any combination thereof. P. Air-conditioning units; and Q. Similar or analogous articles to those enumerated above. Any material, part or accessory of the abovementioned articles shall be taxed at the same rate, except those that will be used exclusively in the manufacture or preparation of any of the essential articles enumerated in Section 163(2) of the Tax Code, and tires which shall be taxed as ordinary articles under Section 164(4) of the Tax Code. Parts and accessories of motor vehicles, including those of automobiles, are taxed at 10% under Section 163(2)(n) of the Tax Code. II. Articles classified as essential articles, taxable at the rate of 10% (Section 163[2]) of the Tax Code). A. 1. Processed meat; 2. Processed fruits; 3. Processed vegetables; 4. Processed fish; 5. Processed other seafoods; and 6. Other processed food products for human consumption B. 1. Processed milk; 2. Creamers; 3. Dairy products; 4. Butter; and 5. Butter substitutes like margarine. For purposes of the above, the term "processed" means that such products have undergone the process of curing, canning, bottling, or other manufacturing process. It does not include the simple process of preservation such as freezing, refrigeration, drying, salting or smoking. C. Bread and bakery products. D. 1. Lard; 2. Shortenings; and 3. Cooking oil. Exceptions : Palm oil and coconut oil subject to millers tax . E. 1. Beverages; and 2. Concentrates of beverages whether in liquid, powder or granulated form; intended for consumption as a drink, including but not limited to processed coffee, cocoa, tea or ginger. F. Wheat flour. G. 1. Clothes; and 2. Textile intended for clothing. Exceptions: Textiles wholly or in chief value of silk, wool, or linen which are taxed at 30%. H. 1. Medicine; and 2. Articles primarily intended for the administration of medicine, such as but not limited to needles and injectable needles, scalp vein sets, disposable syringe and t.v. administration sets. I. 1. Soaps; 2. Detergents; 3. Toothbrushes; and 4. Toothpastes. J. 1. Writing pads; 2. Notebooks; 3. Ordinary lead pencils; and 4. Disposable ballpens. K. 1. Cement, such as portland cement, white cement and waterproofing cement; 2. Hollow blocks; 3. Logs; 4. Lumber; 5. Plywood, plyboard and fiberboard; 6. Glass; 7. Roofing materials such as plain or corrugated G.I, sheets of gauge 24 or over, nipa shingles and other roofing materials; 8. Steel bars, such as hot rolled concrete or reinforcing bars; 9. Nails; 10. Sand and gravel; 11. Bamboo and woven bamboo splits; and 12. Basic sanitary plumbing fixtures and fittings. L. 1. Fish feeds; 2. Poultry feeds; 3. Swine feeds; and 4. Cattle feeds. M. 1. Fertilizers; 2. Pesticides; and 3. Technical materials for the formulation of pesticides. N. Spare parts and accessories of motor vehicles. Exception : Tires Article subject to original sales tax, except those taxed under Section 163(3) and those subject to excise tax, when used as raw materials in the manufacture or preparation of essential articles shall be taxed at 10% provided that the purchaser of such raw materials shall certify to the domestic supplier-importer or the manufacturer, in the case of direct importation, that the articles shall be used exclusively in the manufacture or preparation of essential articles subject to tax at 10%. III. Articles classified as agricultural products taxable at zero percent rate (Section 163[3] of the National Internal Revenue Code). Agricultural food and non-food products including all kinds of fish and its by-products when sold in their original state, even if they have undergone the simple process of preservation such as freezing, drying, salting, smoking or stripping. Rice and corn shall be considered in their original state even when milled. Exception : Agricultural products milled and taxed under Section 168 of the Tax Code. IV. Articles classified as other articles taxable at the rate of 20% (Section 163[4] of the National; Internal Revenue Code). A. Articles not covered by Section 163[1], [2], and [3] of the Tax Code; B. Articles specifically excepted under Section 163(1) of the Tax Code: 1. Surgical and dental instruments; 2. Silver-plated wares; 3. Frames or mountings for spectacles or eyeglasses; 4. Dental gold or gold alloys and other precious metals used in filling; mounting or fitting the teeth; and utility vehicles; 5. Motor vehicles classified as trucks, jeeps and utility vehicles. C. Tires. SECTION 7 . Articles or transactions not subject to percentages tax on sales . The following shall be exempted from the percentage tax on original sale imposed in Section 163 of the Tax Code: 1. Articles subject to excise tax (except automobiles); 2. Article subject to miller's tax under Section 168 of the Tax Code; 3. Articles shipped or exported by the manufacturer, producer or trader; and 4. Sales by a registered export producer to another export producer or to a registered export trader, which are considered as "export sales." SECTION 8 . 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 and mills; 3. Coconut oil mills; 4. Palm oil mills; 5. Cassava mills; and 6. Desiccated coconut factories. (b) Rate and base of tax . The rate of tax is three (3%) per cent of the gross value in money of all the rope, sugar, coconut oil, palm oil, cassava flour or desiccated coconut, manufactured, processed or milled, including the by-products of the raw material from which said articles are produced, processed or manufactured. The tax shall be based on the actual selling price or market value of the said articles at the time they leave the factory or mill warehouse. cd i The tax accrues from the time the articles leave the factory or mill warehouse, although payment may be made not later than the twentieth (20th) day after the end of the taxable quarter. "By-products" refer to those products which, in the process of 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-product produced as a result of the processing or manufacturing of raw materials into the articles enumerated are also subject to the three percent (3%) tax. Exception : The tax shall not apply to the following articles, where such articles shall be removed for exportation by the proprietor or operator of the factory or mill himself, 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: 1. Rope; 2. Palm oil; 3. Coconut oil; 4. Copra by products; and 5. Desiccated coconuts. (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, or a fixed amount for the milling service, 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 or mill and paid by him to the Commissioner. (d) Tax credits . (1) Miller's taxes . Any sales, miller's or excise taxes paid on raw materials or supplies used in the milling process shall not be allowed as credit against the miller's tax due. However, in the case of a proprietor or operator of a refined sugar factory, the miller's tax paid on the raw sugar used in the production of refined sugar shall be credited against the tax due on the refined sugar. (2) Exports by planter or owner of raw materials . Where the planter or owner of the raw materials exports his share of the rope, palm oil, coconut oil, copra by-products or desiccated coconuts whether in their original state or as an ingredient or part of any manufactured article or product, he shall be entitled to a tax credit equivalent to the miller's tax paid on the milled products exported. He shall file an application for the issuance of a tax credit certificate which may be used against any internal revenue tax directly due from him. cd i (3) Creditability of miller's tax to sales tax . Where articles are manufactured out of articles subject to the miller's tax imposed by Section 168 (203) of the Tax Code, the miller's tax paid shall be credited against the sales tax due on the finished products subject to tax under Section 163 (1), (2) and (4) of the Tax Code. SECTION 9 . Automobiles . (a) Base and rate of tax . There shall be levied, assessed and collected an ad valorem tax based on the manufacturer's or importers selling price, net of excise and sales taxes. The tax rate shall depend on the engine displacement of the automobile being sold. In the case of the imported automobiles not for re-sale, the ad valorem tax shall be based on the value used by the Bureau of Customs in determining tariff and customs duties, plus the customs duty and all other charges, plus 10% of the total thereof. In addition to the ad valorem tax, there shall be levied, assessed and collected on the original sale a percentage tax at the rate of 30% of the gross selling price or gross value in money of the article sold, net of the sales tax due, if indicated separately in the sales invoice. The ad valorem tax rates are as follows: Engine Displacement Tax Rate Gasoline Diesel 5% 1201 to 1600 cc 1851 to 2050 cc 10% 1601 to 1800 cc 2051 to 2250 cc 20% 1801 cc or over 2251 cc or over Illustrative Examples Example 1 . Locally manufactured automobile . Toyota Motors sold a Toyota Corona silver edition 1705 cc gasoline engine on August 4, 1986 for P180,000, inclusive of ad valorem and sales tax. The manufacturer's sales tax is as follows: P280,000 = P215,384.62 Gross S.P. excluding tax 1.30% 64,615.38 Sales Tax __________ P280,000.00 ========= The net sales tax due, will be arrived at by deducting any tax credits allowable as prescribed in other provisions of these regulations. P215,384.62 = P195,804.20 S.P. net of excise and sales tax 1.1 19,580.42 excise tax ___________ P215,384.62 Gross S.P. excluding sales tax ========= The ad valorem tax paid on the automobile sold is not creditable against the sales tax due on the sale of the automobile. Example 2 . Imported automobile subject to compensating tax . Total value of an imported Toyota Corona silver edition, 1705 cc gasoline engine used by Customs, including customs duties on other charges P250,000 10% thereof P25,000 Ad valorem tax base 275,000 Ad valorem tax rate 10% Ad valorem tax P27,500 The importer's compensating tax is computed as follows: Customs tax base, duties and other charges P250,000 Ad valorem tax 27,500 ________ P277,500 ________ Compensating tax rate 30% Compensating tax P83,250 ======= (b) Company cars . The ad valorem tax shall be due the time of withdrawal of the manufactured automobiles for company use. The basis of the tax shall be the same basis as those used in cars of the same make and model withdrawn and sold. The deferred tax credit account should be reduced by the amount of tax on raw materials, parts, accessories, or other articles used in the manufacture of automobiles withdrawn for company use. A sales tax shall be imposed on the original sale of any automobile previously withdrawn for company use which is subsequently sold within one year from the date of withdrawal, such tax to based on the actual selling price. A tax credit equivalent to the ratio which the tax base used in computing sales tax over the actual selling price of a similar brand new car bears to the tax credit corresponding to the automobile sold which was previously deducted from the deferred tax credit account shall be allowed on the sales tax due. casia 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. Chasis 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) Selling price/similar make (7) Tax credit previously deducted Illustrative Examples Example 1 . Withdrawal for company use . Given: A 1705 cc gasoline engine Toyota Corona sedan was withdrawn from the factory for company use on August 1,1986. At the time of withdrawal the selling price of a similar car, net of excise tax and sales tax is P195,804.20 At the time of withdrawal the manufacturer shall pay an excise tax of P19,580.42 computed as follows: Selling price net of excise and sales tax due P195,804.20 __________ Tax rate for 1705 cc 10% Ad valorem tax P19,580.42 ========== Example 2 . Sale of company car . Assuming that the manufacturer sold a company car within one year from the date of its withdrawal with the following given facts: 1. Date of withdrawal February 1, 1986 2. Date of sale August 2, 1986 3. Type of car Toyota Corona, 1705 cc, gasoline engine 4. Selling price (net of tax) P220,000 5. Deferred tax credit deducted at the time of withdrawal P60,000 6. Selling price of new Toyota Corona, 1705 cc at the time of sale (net of tax) P300,000 In this case the taxpayer should include the amount of P220,000 in his percentage tax return for the quarter. At the same time, he shall be allowed to add back to his "Deferred Tax Credit" account the amount of P44,000 computed as follows; Selling price of Tax credit company car x previously = Tax credit allowed _________ S.P. of same model deducted to be restored or P220,000 ________ x P60,000 = P44,000 P300,000 SECTION 10 . Payment of privilege taxes . Beginning January 1, 1986, any person subject to the percentage tax on original sale shall secure an annual privilege tax in the amount of P200.00 except those required to secure a privilege tax under Section 161(3) (192[3]) of the Tax Code, in which case he should pay the fixed taxes imposed on the manufacture of articles specifically identified therein, on or before the last day of the first month of the taxable year he adopted for income tax purposes. Any person first beginning a business must pay the privilege tax before engaging therein. SECTION 11 . Transitory provisions . Taxpayers whose taxable quarter commences prior to August 1, 1986 and ends on or after August 31, 1986, who are selling articles wherein the rates of sales tax before and after August 1, 1986 either increased or decreased, shall attach to their percentage tax return an "Auxiliary Statement" segregating their gross sales prior to August 1, 1986 from their gross sales on or after August 1, 1986. Any tax deemed paid for purchase prior to August 1, 1986 from a pioneer enterprise registered with the Board of Investments, enjoying full or partial exemption from the payment of sales taxes, which have already been debited to the "Deferred Tax Credit" account shall still be allowed as credits to sales tax payable. However, purchases from pioneer enterprises on or after August 1, 1986 shall no longer be entitled to be deemed paid tax credit. Illustrative Example A taxpayer whose taxable quarter is July 1, 1986 to September 30, 1986, and whose sales were previously taxable at 50% and subsequently reduced to 30% shall attach an "auxiliary Statement" as follows: Period Taxable Sales Tax Rate Tax Due July 1-31, 1986 P300,000 50% P150,000 Aug. 1-Sept. 30, 1986 700,000 30% 210,000 Total sales tax for the quarter P360,000 Less: Tax credits 280,000 _________ Net sales tax due P80,000 ======== SECTION 12 . Repealing Provision . All regulations, rulings or orders, or portions thereof issued in connection with the implementation of Title V of the Tax Code which are inconsistent with the provisions of these regulations are hereby revoked. SECTION 13 . Effectivity . These regulations shall take effect on August 1, 1986. (SGD.) JAIME V. ONGPIN Minister of Finance Recommending Approval: (SGD.) BIENVENIDO A. TAN, JR. Commissioner of Internal Revenue