VAT Ruling No. 094-90

April 27, 1990 VAT RULING NO. 094-90 Petrophil Corporation 7901 Makati Avenue Makati, Metro Manila Attention: Mr . Elpidio M . Gamboa, Jr . Tax Counsel Tax & Corporation Services Dept . Gentlemen : This refers to your letter dated November 10, stating that your company is engaged in the manufacture processing of lubricating oils, greases and special petroleum products; that in the manufacture of these products, you either import or buy locally the raw materials such as basestocks and additives to be used in the production; that you maintain an inventory from which raw materials required for production of said products withdrawn; that by December 31, 1987, you have an inventory of unused raw materials such as basestocks and additives which comprise your year-end ending inventory for materials in the production of lubricating oils, greases special petroleum based products; and that you also expect that by December 31, 1987, you will have an ending inventory of unsold finished products of lubricating oils, greases special petroleum based non-regulated petroleum products. llcd Based on the foregoing facts, you now request a rule to the effect that: "1) Petrophil is entitled to an 8% transitional input tax credit of its beginning inventories determined as of December 31, 1987, of raw materials, such as basestocks and additives, to be used in the manufacture of lubricating oils, greases and other non-regulated petroleum based products. "2) Petrophil is similarly entitled to the 8% transitional input tax credit for its beginning inventories of finished products, determined as of December 31, 1987, of lubricating oils, greases, and other non-regulated petroleum products." In reply, please be informed that for manufactured articles subject to excise tax, it is only the inventory of supplies with sales tax component as of December 31, that are entitled to the 8% presumptive input tax, in an amount of proportionate to its taxable operations. Such being the case, you are not entitled to claim the 8% presumptive input tax of the value of the inventory of basestocks except those locally purchased which were then subject to sales tax and additives inasmuch as the same are considered as raw materials (and not supplies) for the manufacture of lubricating oil, greases and other special petroleum-based products. With regard to your finished products such as lubricating oil, grease and other non-regulated petroleum products, you are not also entitled to the 8% presumptive input tax inasmuch as the excise tax component of said goods, which may form part of their inventory value, does not qualify as an input tax credit. The reason for the provision of Section 105 of the Tax Code as amended by EO 273 that allows transitional input tax credit is to give recognition to the sales tax component of inventories which would otherwise qualify as input tax credit had such stocks of goods been acquired during the effectivity of the VAT law. cdll Very truly yours, JOSE U. ONG Commissioner of Internal Revenue