Amendment of Sales Tax Regulations

October 12, 1984 REVENUE REGULATIONS NO. 20-84 SUBJECT : Amendment of Sales Tax Regulations TO : All Internal Revenue Officers and Others Concerned SECTION 1 . Scope . These Regulations, promulgated pursuant to Section 326 of the National Internal Revenue Code, S ection 47 of Presidential Decree No. 1959, and Executive Order No. 990, amend certain provisions of Revenue Regulations No. 8-78, otherwise known as the Sales Tax Regulations. SECTION 2 . Section 5 of Revenue Regulations No. 8-78 is hereby amended to read as follows: "Sec. 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 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." cd i "(b) Tax Base on Gross Sales or Output for the Taxable Quarter . The percentage tax on sales for a taxable quarter shall be determined by applying the appropriate rate of tax on 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 during the taxable quarter. Discounts which are given at the time of the sale that are expressly indicated in the sales invoice may be allowed as deduction from the gross selling price." "(c) Tax Credit . Any percentage or specific tax paid under Titles IV and V of the National Internal Revenue Code on domestically manufactured, processed or produced or imported 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 may be credited against the sales tax for the same taxable quarter. In case the sales tax paid on the raw material, part, accessory, or other article purchased during the taxable quarter exceeds the amount of the sales tax due on the finished product, sold during the same taxable quarter, the excess shall be credited against the sales tax liabilities of the manufacturer for the succeeding taxable quarter or quarters. "The amount of sales tax arising from purchases of raw materials during the taxable quarter which is creditable against the sales tax for the same quarter shall be reduced by the amount of tax on raw material, part, accessory, or other article which are subsequently sold, transferred, disposed of, or, for any other reason, can no longer be used in the manufacture of the finished product during the same quarter. However, if the amount of the tax credit corresponding to the unused raw materials which were so subsequently sold, transferred, or disposed of exceeds the tax credit arising from raw material purchases during the current quarter, the excess shall be paid by the manufacturer in addition to the sales tax for the same taxable quarter." "(d) Treatment of Accumulated Tax Credits on Inventories as of December 31, 1984. Accumulated and unused tax credits accruing on inventories of raw materials, work-in-process and finished goods as of the beginning of taxable quarter which commenced after December 31, 1984 shall be applied in four (4) equal installments against the quarterly sales tax for the four (4) quarters immediately following the effectivity of these Revenue Regulations." casia Illustrative Example Example: Assume that on January 1, 1985, a manufacturer has 100 units at P10 per unit of raw material inventory. During the first quarter, he purchased 1,000 units of raw materials at P15 per unit and manufactured 600 units into 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 (original cost: P15) of raw material without converting the same into finished article. He used the remaining 300 units of raw material in manufacturing finished article which he sold for P35 per unit. Assuming further that the supplier separately billed 10% tax on the raw material (which is not included in the selling price) the manufacturer's sales tax for the first and second quarters will be computed as follows: First Quarter Sales - Finished Articles: 600 units x P30 P18,000 ====== Sales Tax due thereon at 10% P 1,800 Less: Tax Credits - For current raw material purchases - Cost Price 1,000 x P15 P15,000 Separately billed tax (10%) P 1,500 For Inventory beginning: 100 x P10 P1,000 ===== Separately billed tax P 100 1/4 thereof 25 Total tax credit 1,525 Tax Payable 275 ====== Second Quarter Sales - Finished Articles: 300 x P35 P10,500 ====== Sales Tax due thereon at 10% P1,050 Less: Tax credit - For current quarter raw material purchases Cost: 200 x P20 P4,000 ===== Separately billed tax (10%) P 400 For Inventory beginning (1/4) of P100 25 P 425 Less: Tax credits on raw materials sold - 400 units x P15 P 6,000 ====== Tax credit claimed in 1st quarter P 600 (600) 275 ====== ==== Total Tax Payable P1,325 ====== "(e) Conditions for Availment of Tax Credit . The manufacturer can avail of the benefits of tax credit only if the requirements for the availment of sales tax credit prescribed in Revenue Regulations No. _____ are complied with. "(f) Tax Credit for Articles Produced by BOI-Registered Pioneer Enterprise . Whenever a tax-exempt product of a pioneer enterprise registered with the Board of Investments is used in the manufacture or production of any article sold domestically, the sales or specific taxes otherwise due on such tax-exempt product shall be credited against the sales tax due on the manufactured article. cd "(g) Tax Credit Privilege for a Manufacturer-Exporter . 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. SECTION 3 . Effectivity . These Regulations shall take effect on the taxable quarters beginning after October 15, 1984. ALFREDO PIO DE RODA Acting Minister of Finance Recommending Approval: RUBEN B. ANCHETA Acting Commissioner