Requirements for availments of sales tax credits and uniform method of sales tax credit accounting

October 12, 1984 REVENUE REGULATIONS NO. 19-84 SUBJECT : Requirements for availments of sales tax credits and uniform method of sales tax credit accounting TO : All internal revenue officers and others concerned SECTION 1 . Scope . These Regulations, promulgated in accordance with Section 326 of the National Internal Revenue Code, prescribe certain requirements for availment by manufacturers of sales tax credits, including a uniform method of accounting for sales tax and sales tax credit under Title V o f the National Internal Revenue Code and Executive Order No. 990. SECTION 2 . Requirements for allowing claims for sales tax credit . (a) Statutory requirement . To be creditable against a manufacturer's sales tax, the amount of sales tax on the raw material, part, accessory, or other article intended for conversion into, and to form part of a finished article shall be indicated as a separate item in the supplier's sales invoice. (b) Substantiation requirements . The burden of establishing the correctness of the amount of tax credit shall be borne by the manufacturer. Claims for tax credits by the manufacturer shall be allowed only upon compliance with the following substantiation requirements: aisa dc (1) The manufacturer has adopted and employed the sales tax credit accounting method prescribed in these regulations; (2) The supplier issuing the invoice (i) is duly registered and accredited by the Commissioner of Internal Revenue as a registered supplier of raw material and the said supplier is not a manufacturer; (ii) complied with the requirement to use the sales tax credit accounting prescribed in these Regulations; (3) The supplier's invoice indicates the amount of sales tax as a separate item in the voice, and the supplier's accreditation number. (c) Effect of manufacturer's failure to meet substantiation requirements . Except as provided for in paragraph (d) of this Section, claims for tax credits which do not meet the requirements of substantiation prescribed in this Section shall not be allowed. (d) Effect on manufacturer of dealer-supplier's excessive billing of tax . If, upon investigation, the Commissioner determines that the amount of sales tax billed by a supplier (who is not a manufacturer) as a separate item in his sales invoice is in excess of the amount of sales tax actually shifted or passed on to him, then the amount allowable to a manufacturer as sales tax credit arising from purchases from the said supplier of raw material, part, accessory, or other article for conversion into or intended to form part of the finished product, shall not exceed an amount computed by applying the rate of sales tax prescribed for such raw material, part, accessory, or other article on sixty per cent (60%) of the supplier's selling price, including the tax separately billed in the supplier's invoice. cd SECTION 3 . Registration and accreditation of raw materials supplier-dealer . Any person (1) who is not a manufacturer, (2) who supplies raw material, part, accessory, or other article and packaging materials to a manufacturer for conversion into or intended to form part of the finished product, and (3) who desires his separately billed sales tax availed of by his customer-manufacturer as tax credit shall register with the appropriate Revenue District Officer for accreditation as a dealer-supplier of the said articles. Application for registration and accreditation shall be made on BIR Form No. 25-30 (Annex "A"). The Revenue Director, after investigation and determination that the supplier-dealer has adopted and employed the accounting for sales tax credit prescribed in these Regulations, shall issue an accreditation certificate (Annex "B"). The accreditation certificate shall be withdrawn, cancelled and invalidated upon subsequent findings of noncompliance by the dealer-supplier with requirements prescribed in these Regulations and will result in the nonrecognition and disallowance of the sales tax shifted by such dealer-supplier to a purchaser-manufacturer as sales tax credit. SECTION 4 . Accounts to be used and entries to be made for recording purchases and recording sales tax credits . (a) Manufacturer . Every manufacturer shall maintain the following or similarly equivalent accounts in his books of accounts wherein all purchases of raw material, part, accessory, or other article (hereinafter referred to as "purchases"), including packaging materials, which are intended by the purchaser-manufacturer for conversion into and to form part of a finished article, and sales tax credits representing sales, millers, or specific taxes billed to him and/or indicated as a separate item in a supplier's sales invoice (hereinafter referred to as "separately billed tax") are recorded: (1) " Purchases - w/ TC : Supplier-Manufacturer " Account . This account shall be debited with amounts for purchases made by the manufacturer in cases where the supplier who is also a manufacturer indicates a separately billed tax in the sales invoice. (2) " Purchases - w/ TC : Supplier-Dealer " Account . This account shall be debited with amounts for purchases made by the manufacturer in cases where the supplier who is not a manufacturer indicates a separately billed tax in the sales invoice. (3) " Purchases - w/o TC :" Account . This account shall be debited with amounts for purchases made by the manufacturer in cases where the supplier does not indicate a separately billed tax in the sales invoice. cdt (4) " Packaging materials - w/ TC : Supplier-Manufacturer " Account . This account shall be debited with amounts for packaging materials purchased by the manufacturer in cases where the supplier who is also a manufacturer indicates a separately billed tax in the sales invoice. (5) " Packaging materials - w/ TC : Supplier-Dealer " Account . This account shall be debited with amounts for packaging materials purchased by the manufacturer in cases where the supplier who is not a manufacturer indicates a separately billed tax in the sales invoice. (6) " Packaging material - w/o TC " Account . This account shall be debited with amounts for packaging materials purchased by the manufacturer in cases where the supplier does not indicate a separately billed tax in the sales invoice. (7) " Deferred Sales Tax Credit (or DSTC) : Supplier-Manufacturer " Account . This account shall be debited with the amount of sales, millers or specific tax separately billed in the invoice everytime purchases are made from a supplier who is a manufacturer and intended by the purchaser-manufacturer for conversion into and to form part of a finished article. (8) " Deferred Sales Tax Credit (or DSTC) : Supplier-Dealer " Account . This account shall be debited with the amount of sales, millers, or specific tax separately billed in the supplier's invoice where such purchases are made from a supplier who is not a manufacturer and intended by the purchaser-manufacturer for conversion into and to form part of a finished article. (9) " Deferred Sales Tax Credit (or DSTC) : AST " Account . This account shall be debited with the amount of advance sales tax paid by the manufacturer upon importation of raw material, part, accessory, or other material intended by the said importer-manufacturer for conversion into and to form part of a finished article. (10) " Deferred Sales Tax Credit (or DSTC) : Pioneer Enterprises " Account . This account shall be debited with the amount of deemed paid tax separately billed in the invoice everytime purchases are made from a pioneer enterprise registered with the Board of Investments intended by the purchaser-manufacturer for conversion into and to form part of a finished article. A subsidiary ledger shall be kept and maintained wherein the DSTC accounts are classified and separately recorded according to supplier (manufacturer or dealer) and according to rates of sales tax. (b) Dealer . Every dealer shall maintain the following or similarly equivalent accounts in his books of accounts wherein all (1) purchases of merchandise and articles primarily for sale to customers in the ordinary course of his trade or business (without undergoing manufacturing process or processes) and (2) sales, millers, or specific taxes separately billed, if any, are recorded (debited): (1) " Purchases : w/ Supplier's Sales Tax " Account . This account shall be debited with the amount of purchases made by a dealer in cases where the supplier's invoice indicates a separately billed tax. cd i (2) " Purchases : w/o Supplier's Sales Tax " Account . This account shall be debited with the amount of purchases made by the manufacturer in cases where the supplier's invoice does not indicate a separately billed sales tax. (3) " DSTC : Supplier-Manufacturer " Account . This account shall be debited with the amount of separately billed tax arising from purchases made from a supplier who is a manufacturer. (4) " DSTC : Supplier-Dealer " Account . This account shall be debited with the amount of separately billed tax arising from purchases made from a supplier who is not a manufacturer. (5) " Advance Sales Tax " Account . This account shall be debited with the amount of advance sales tax paid by a dealer who imports articles for resale or advance sales tax separately billed in the invoice of a supplier. (6) " DSTC : Pioneer Enterprise " Account . This account shall be debited with the amount of separately billed deemed paid tax arising from purchases made from a pioneer enterprise registered with the Board of Investments. SECTION 5 . Accounts to be used and entries to be made for recording sales and sales tax liability . (a) Manufacturer . Every manufacturer shall enter the following or similarly equivalent accounts in his books of accounts wherein all sales and the corresponding sales tax liability and sales tax credit shall be recorded: (1) " Sales : Finished Article " Account . This account shall be credited with the total amount of sales of finished articles, excluding the sales tax and the sales tax credit. (2) " Sales Tax Payable " Account . This account shall be credited with the amount of sales tax based on the amount of sales credited to "Sales" account. (3) " Sales : Unused R/M Account ". This account shall be credited with the amount of sales of raw material, part, accessory, or other article which are subsequently transferred, disposed of, or for any other reason, can no longer be used in the manufacture of the finished product. (4) " DSTC - " or " Advance Sales Tax " Account . Any of these accounts shall be matched and credited with the amount of sales tax on the articles sold, transferred, disposed of, or for any other reason, can no longer be used in the manufacture of the finished product. (b) Dealer . Every dealer shall maintain the following accounts in his books of accounts wherein all sales of merchandise or articles are recorded (credited) in the sales account: (1) " Sales " Account . This account shall be credited with the amount of sales of articles, exclusive of the sales tax which the dealer shifts to his customer. (2) " DSTC " Accounts . These accounts shall be credited with the corresponding amounts of separately billed tax originating from the supplier's invoice for purchases made by the dealer as recorded in accordance with the provisions of Section 4 (b) of these Regulations, which will be shifted to the dealer's customer. SECTION 6 . Entries to be made upon payment of sales tax . Upon payment of the quarterly sales tax, the total of the amounts debited to the DSTC accounts prescribed in Section 4 (a) (7 to 10) of these Regulations during the quarter shall be credited against, but only to the extent of, the total amount of sales tax which was credited to the "Sales Tax Payable" account during the same quarter. The balance of the DSTC accounts shall be carried over (as creditable taxes) to the succeeding taxable quarters. SECTION 7 . Transitory accounting for unused accumulated tax credit as of December 31, 1984 . The total amount of accumulated or unused tax credit accruing on inventories of raw materials, work-in-process and finished goods as of December 31, 1984 in the case of taxpayers using the calendar quarter and as of the close of the fiscal quarter ending after December 31, 1984 in the case of taxpayers using the fiscal quarter shall be debited to "Accumulated Tax Credit - Beginning" account or a similarly equivalent account. The total amount debited to this account shall be credited to the same account in four equal amounts as part of the sales tax credit to be applied against manufacturer's quarterly sales tax. cdt SECTION 8 . Effectivity . These Regulations shall take effect on taxable quarters beginning after December 31, 1984. ALFREDO PIO DE RODA Acting Minister of Finance Recommending Approval: RUBEN B. ANCHETA Acting Commissioner ATTACHMENT BIR Form 25-30 - Application for Registration as Supplier of Raw Materials