October 30, 2003 REVENUE REGULATIONS NO. _______
SUBJECT : Revenue Regulations Governing the Imposition of Excise Tax on
Non-Essential Goods
TO : All Internal Revenue Officers and Other Concerned
SECTION 1. Scope . – Pursuant to the provisions of Section 244, in relation to Section 245, of the National Internal Revenue Code of 1997, these Regulations are hereby promulgated to implement the provisions of Section 150(a), (b) and (c) of Title VI of the said Code imposing excise tax on non-essential goods.
SECTION 2. Coverage. – The following articles shall be considered as non-essential goods:
a. Jewelry, whether real or imitation; b. Pearls, whether real or imitation;
c. Precious and semi-precious stones and imitations thereof, such as diamonds, ruby, jade, sapphire, amethyst, opal, etc.;
d. Goods made of or ornamented, mounted or fitted with precious metals, or imitations thereof, or ivory, such as timepieces, gold clubs, pens, mahjong tiles fitted with gold alloys or other precious metal bases, ivory or studded with precious or semi-precious stones:
e. Opera glasses; f. Lorgnettes; g. Perfumes;
h. Toilet waters; and
i. Yachts and other vessels intended for pleasure or sports.
Provided, however, that the following shall not be considered as non-essential goods:
1. Surgical and dental instruments; 2. Silver-plated wares;
4. Dental gold or gold alloys and other precious metal used in filling, mounting or fitting of the teeth
.
SECTION 3. Definition of Terms . – For purposes of these regulations and for a more effective enforcement and monitoring of excise tax collection, the following words and phrases shall have the sense and meaning indicated hereunder:
a. JEWELRY – shall refer to articles of personal adornment made of precious metals, stones, pearls or combinations thereof such as, rings, bracelets, necklaces, brooches, earrings, watch-chains, fobs, pendants, tie, pins, cuff links, combs, tiaras, dress-studs, religious or other medals or insignia. It shall include articles made of precious metals, with or without stones for personal use of a kind normally carried in the pocket, handbag or in one’s person such as cigarette cases, powder boxes, chain purses or cachou boxes.
b. PRECIOUS METALS – shall include platinum, gold, silver and other metals of similar or greater value.
c. IMITATIONS THEREOF – shall refer to jewelry, precious metals or gemstones but made of base metals and/or materials other than precious metals or stones. Base metals refer to, but are not limited to, iron and steel, copper, nickel, aluminum, lead, zinc and tin.
d. PERFUMES – a fragrant product, usually in alcoholic solutions, that results from the artful blending of certain odoriferous substances in appropriate proportions. Also called extraits or extracts and shall refer to toilet preparations which are solutions of perfume concentrates or perfume oils in alcohol or any other appropriate solvent such as, but not limited to, extrait perfumes, eau de parfum, perfume concentrates, perfume sprays, aerosol perfumes and perfume roulettes containing ten percent to twenty five percent (10% to 25%) perfume concentrate or perfume oil.
e. TOILET WATERS – shall refer to a less concentrated form of any other type of perfume such as, but not limited to, eau de toilette, eau de cologne, colognes, florida water, splash colognes, baby colognes, cologne sprays, body sprays, body mists, aerosol colognes, and aftershave lotions used as body fragrance, after shave or skin freshener.
f. COLOGNE –perfumed liquid compound of alcohol and certain aromatic oils, usually consisting of alcohol and about 2% to 6% perfume concentrate. Commonly used interchangeably with toilet water.
g. INTENDED FOR PLEASURE OR SPORTS – for purposes of classifying yachts and other vessels shall refer to the primary purpose for which the yacht or vessel was manufactured based on the manufacturer’s product description, specification, or design such as cabin cruisers, sloops, speed boats, racing
yawls, and the like. Provided, further that for purposes of these Regulations, the term “vessel” shall refer to any watercraft propelled by oars, paddles, sails or engine.
h. OPERA GLASS – shall refer to a binocular telescope of small size, suitable for use at the theatre in order to have a better view of the performance and the stage play being presented.
i. LORGNETTE – shall refer to long-handled opera glass or a pair of eyeglasses with an ornamental handle into which they may be folded when not in use. j. SPECTACLES – shall refer to a pair of eyeglasses with hinged bows to secure
them before the eyes, used to correct defects in vision, or to protect the eyes, as from glare.
k. EYEGLASSES – shall refer to any pair of lenses or lens usually in a frame that is used to help or correct faulty vision.
l. SILVER PLATED WARES – shall refer to any manufactured articles or products such as tableware, glassware and the like plated or coated with a thin layer of silver.
m. SURGICAL OR DENTAL INSTRUMENT – shall refer to an implement, tool, device or mechanism used in surgery or in dentistry.
n. BRAND OF PRODUCTS – shall refer to a name or trademark used to identify a product or group of products of a particular manufacturer and duly registered with the BIR.
o. WHOLESALER/DISTRIBUTOR – shall refer to any person, natural or juridical with whom or in which the manufacturer or importer has no proprietary interest, directly or indirectly, who purchases goods or products from the manufacturer or importer for purposes of sale or subsequent distribution or resale.
p. RETAILER – shall refer to one who purchases goods for purposes of selling the same in small quantities directly to the end or ultimate consumer.
q. WHOLESALE PRICE – shall refer to the price net of excise tax and value-added tax, at which the goods are sold to the public at wholesale in the place of production or through their sales agents. If the manufacturer also sells or allows such goods to be sold at wholesale in another establishment of which he is the owner or the profits of which he has an interest thereto, the wholesale price in such establishment shall constitute the gross selling price. Should such price be less than the cost of manufacture plus expenses incurred until the goods are finally sold, then a proportionate margin of profit, not less than
10% of such manufacturing cost and expenses shall be added to constitute the gross selling price.
r. MODEL – shall refer to the manufacturer’s given nomenclature of the non-essential goods more specifically that of yachts and other vessels intended for pleasure or sports. It shall also refer to the name used to identify a product or group of products of a particular manufacturer or importer and duly registered with the BIR.
s. PRIMARY RAW MATERIALS – shall refer to the major or primary components of the finished product.
t. PLACE OF PRODUCTION – shall refer to an area designated by a manufacturer as depicted in the factory plat and plan submitted to and approved by the Commissioner of Internal Revenue or his duly authorized representative, wherein the process of producing or manufacturing the non-essential goods are done until the same shall have been completely finished and ready for sale.
u. IMPORTER – shall refer to any person bringing in from a foreign country non-essential goods which are intended for sale, for personal use, or commercial distribution.
v. EXPORTER – shall refer to any person, natural or juridical, bringing or sending out to a foreign country non-essential goods which are intended for sale, for personal use, or for use in business or commercial distribution
w. OFF-SPEC PRODUCT – shall refer to a product below or outside the standard specifications set forth by the manufacturer.
SECTION 4. Persons liable to the tax. – The following persons shall be liable for the payment of ad valorem tax on non-essential goods:
A. On locally manufactured goods.
The excise tax shall be paid by the manufacturer or producer of the goods. Should domestic products be removed from the place of production without the payment of the tax, the dealer/trader, owner or any person having possession thereof shall be liable for the excise tax due thereon.
B. On imported goods.
The excise tax shall be paid by the owner or importer of the goods or by the dealer/trader, or by any person who is found in possession of any untaxed articles other than the one legally entitled to exemption therefrom.
In cases where the tax- free goods are brought or imported into the Philippines by persons, entities, or agencies exempt from tax and are subsequently sold, transferred, or exchanged in the country to non-exempt persons or entities, the purchaser or recipient or such goods shall be considered as the importer, and shall be liable for the excise tax due on such importation.
SECTION 5. Time, Place and Manner of Filing of Return and Payment of Excise Tax on Non-Essential Goods.
A. On locally manufactured non-essential goods.
a. Filing of return – any person liable to pay the excise tax on locally manufactured or produced non-essential goods shall, before removal of such products, file in triplicate for each place of production a separate consolidated daily return (BIR Form 2200-AN) and pay the ad valorem tax due on such removal.
In case of payment of the tax by any person other than the local manufacturer, the excise tax return shall likewise be accomplished and filed by such person indicating all the pertinent information therein.
b. Payment of ad valorem Tax
1) The ad valorem tax due on locally manufactured non-essential goods shall be paid by the manufacturer before removal from the place of production. In case a person is found in possession of untaxed domestically manufactured non-essential goods, the tax due thereon shall be paid immediately upon demand.
2) Advance Payment of deposits – every person liable to pay ad valorem tax who is authorized to avail of the advance payment scheme may be allowed to effect removals of excisable goods from his place of production without prior filing of the prescribed excise tax return and supporting documents provided he has sufficient balance of deposits with the BIR to cover full payment of the ad valorem tax due on said removals. The prescribed daily excise tax return may be filed with a duly accredited bank or duly authorized collection agent not later than the first working day of the calendar week immediately following the week of actual remo vals. The payment of the advance deposit shall be made by filing the excise tax return in triplicate.
3) Where to file and pay – the excise tax return shall be filed with and the excise tax due thereon be paid to a bank duly accredited by the Commissioner of Internal Revenue under the jurisdiction of the revenue office where the person liable for the payment of the tax is
registered or required to be registered. In places where there are no duly accredited agent banks within the municipality or city, the excise tax return shall be filed with and any amount due paid to the duly authorized collection agent under the jurisdiction of the Revenue District Officer or duly authorized Treasurer of the city or municipality where the production or manufacturing plant is located or the person in possession of untaxed non-essential goods is registered or required to be registered.
B. On imported non-essential goods.
The excise tax due on imported non-essential goods shall be paid by the importer to the Customs Collector prior to the release of such goods from the customs house.
SECTION 6. Exemptions or Conditional Tax-Free Removals. The following removals of locally produced/manufactured or imported non-essential articles from place of production or from customs house, respectively, are exempt from the payment of the appropriate excise taxes.
A. Removals of Goods for Export
No ad valorem tax shall be collected on locally produced or manufactured non-essential articles which shall be removed for exportation and are actually exported without returning to the Philippines subject to the following conditions and/or requirements:
a. Permit for Export Shipment – immediately before removal, exporters of non-essential goods shall apply in writing for a written permit from the Commissioner of Internal Revenue, stating the kind, quantity and value of the non-essential goods to be exported, country of destination, name of the vessel, consignee and place of loading. The discovery of any such product in the transit or products which have actually been exported without the issuance of the appropriate permit shall be deemed prima facie evidence of illegal removal of the same and the ad valorem tax shall be due thereon immediately upon demand.
b. Delivery direct to vessel – non-essential goods for export shall be loaded direct form the place of production/manufacture to the vessel or other means of transportation carrying them outside the Philippines and the same shall be under the supervision of an authorized internal revenue officer. A certification of actual exportation duly attested to by the internal revenue officer shall be filed by the exporter to the revenue office where the exporter is registered or required to be registered immediately after loading and departure of the vessel or other means of transportation from the Philippine territory.
c. Proof of Exportation – exporters of non-essential articles are required to submit proof of exportation satisfactory to the Commissioner of Internal Revenue within thirty (30) days from the date of removal from the place of production. The proofs of exportation shall consist of the following documents:
1. Statement from Bangko Sentral ng Pilipinas or any of its accredited bank that the proceeds of the sale is in acceptable foreign currency and accounted for in accordance with the existing banking rules and regulations;
2. Certified true copy of the bill of lading or airway bill; and
3. Commercial invoice issued by the producer/exporter to the foreign consignee.
In cases where proofs of exportation are no t submitted within the thirty day period, or where such proofs are submitted within the period but the same are not satisfactory to the Commissioner of Internal Revenue, the producer/exporter shall be required to pay the ad valorem tax including the applicable penalties. Such payment shall be entered in the Official Registry Book stating the date of payment and validation number of proof of payment thereof.
d. Exporter’s bond – when deemed necessary, an exporter shall be required to post a surety bond in an amount equivalent to the ad valorem tax due on the exported non-essential goods prior to the removal of the same for export conditioned upon the actual exportation thereof in good faith. B. Delivery to Tax-Exempt Persons or Entities
Manufacturers or producers of non-essential goods are hereby allowed to sell to tax exempt persons or entities without the pre-payment of ad valorem tax subject to certain conditions:
1. Tax Exempt persons or entities
a) Embassies of foreign governments subject to the principle of reciprocity.
b) Tax exempt organizations such as the Asian Development Bank pursuant to special laws and subject to existing rules and regulations.
c) Other tax exempt entities or agencies covered by tax treaties, conventions and international agreements to which the Philippines is a signatory subject to reciprocity.
The above persons or entities may also remove imported non-essential goods from customs custody without the pre-payment of the ad valorem tax subject to existing rules and regulations.
2. Requirements in the sale of Non-essential Goods to Tax Exempt Entities Non-essential articles shall not be removed from the place of production for sale to tax exempt agencies without a prior written approval from the Commissioner of Internal Revenue. Otherwise, suc h removal shall be subjected to the appropriate administrative penalties.
3. Tax Credits/Refunds by Tax Exempt persons or entities
In cases where the tax exempt persons or entities purchased non-essential articles in which the ad valorem tax due thereon was included or where the ad valorem tax had been erroneously or illegally collected, such tax exempt persons or entities may file a claim for tax refund or tax credit with the Commissioner of Internal Revenue under existing rules and regulations, submitting the following:
a) Original and duplicate copies of sales invoices;
b) Certified photocopies of proof of payment of the ad valorem tax. The claim for tax credit/refund for erroneous payment of ad valorem tax should be filed within two (2) years from date of payment of the tax. The application for the refund or tax credit and the processing thereof shall be made at the BIR but the actual issuance of TCC refund shall be the responsibility of the agency where the actual payment was made.
C. Importations of Non-Essential Goods by Persons or Entities Specifically Exempted from Payment of Excise tax.
Tax exempt persons or entities may be allowed to remove imported non-essential goods from customs custody without the pre-payment of ad valorem tax subject to existing rules and regulations.
SECTION 7. Tax Treatment on Transactions of Duly Accredited Jewelry Enterprises pursuant to Republic Act No. 8502. – Persons, whether individual or juridical, who are duly accredited by the Board of Investments (BOI) under Republic Act (RA) No. 8502, otherwise known as the Jewelry Industry Development Act of 1998, shall
enjoy the excise tax exemption granted under the said Act. However, the excise tax shall be imposed and, as the case may be, the administrative provisions of these regulations shall be required, in any of the following circumstances:
a) When a jewelry enterprises is not duly accredited with the BOI under RA 8502;
b) During the period when the jewelry enterprise has not secured the renewal of its Certificate of Accreditation with the BOI after the lapse of its validity period;
c) When the Certificate of Accreditation of the jewelry enterprise has been revoked or cancelled by the BOI due to violations of the implementing rules and regulations of the said Act;
d) Activities or transactions of a duly accredited jewelry enterprise that are outside the coverage of its BOI registered business activities;
e) When an accredited jewelry enterprise has availed of tax-exempt purchases or importations of excisable articles in the guise of registered activities or transactions under the said Act but the same were diverted for other purposes; or
f) Failure of any accredited jewelry enterprise to comply with the invoicing requirements provided under Section 22 of these Regulations.
SECTION 8. Rate and Base of Tax. – There shall be levied, assessed and collected a tax equivalent to 20% based on the wholesale price net of excise and value-added tax for locally manufactured non-essential articles. For imported articles, the excise tax of 20% shall be based on the value of importation used by Bureau of Customs in determining tariff and customs duties, net of excise tax and value-added tax.
SECTION 9. Computation of Ad Valorem Tax on Non-Essential Goods . – The ad valorem tax due on locally manufactured or imported non-essential goods shall be computed as follows:
A. On locally manufactured articles:
Example: Perfume/Toilet Waters – Brand name: XYZ Given: Quantity – 1 carton containing
112 bottles at 10 ml. per bottle wholesale price per bottle – P21.678 Computation of Tax:
Total wholesale price (112 bottles x P21.678) – P2,427.94 Excise tax rate x 20%
Excise tax due P 485.59
B. On imported articles Example: Speed Boat
Given: Costs/Insurance/Freight/Other charges – P59,020.43
Computation of Tax:
Total value as determined by BOC - P59,020.43 Excise tax rate x 20% Excise tax due P11,804.09 C. Treatment of Excise Tax Paid on Raw Materials Used.
Any excise tax paid on raw materials used in the production of articles subject to the ad valorem tax shall not be allowed to be credited against the ad valorem tax due on removals of finished or manufactured articles.
Illustrative Example:
ABC Company is a manufacturer of jewelry. It imported loose precious stones at a cost of P660,000.00 that includes excise tax of P100,000.00 it paid before its release from customs custody. These precious stones were manufactured into sets of rings, earrings, bracelets and pendants using gold as mounting materials. The pieces of jewelry were removed from the company’s place of production and will be sold for P1,500,000.00. The computation of excise tax due shall be as follows:
Whole sale price of finished goods P1,500,000.00 Multiplied by excise tax rate x 20%
Excise tax due P 300,000.00
The excise tax paid on precious stones upon removal from customs house shall not be considered creditable against the excise tax due on the manufactured jewelry.
SECTION 10. Compliance requirements for the issuance of a Permit. – Every person or entity whether already engaged or desiring to engage in the business as manufacturer, producer or importer, dealer or trader of non-essential goods shall apply in writing for a permit to engage in such business with the Commissioner of Internal Revenue through his duly authorized representative, together with the following documents:
a) Certificate of Registration issued by the appropriate Revenue District Office where the person or entity is required to be registered;
b) Plat and plan of the manufacturers production plant/importer’s warehouse, if any, location plan, storage and other facilities of the establishment;
c) Certificate of registration with the Bureau of Domestic Trade, in case of single proprietorship;
d) Certified true copy of the Articles of Incorporation or Co-Partnership duly registered with the Securities and Exchange Commission, if the applicant is a corporation or partnership; and
e) Surety bond prescribed under Section 14 of these Regulations.
SECTION 11. Processing of Application for Registration to engage in business on Non-Essential Goods .
A. Upon receipt of the application together with the required documents attached thereto, the Commissioner of Internal Revenue or his duly authorized representative shall conduct ocular inspection of the intended place of production and/or warehouse of the non-essential goods;
B. The production plant where the non-essential goods are manufactured shall be enclosed and shall have only one entry/exit so as to eliminate unlawful removal of manufactured non-essential goods. This entry/exit point shall at all times be easily accessible to all authorized internal revenue officers.
C. No person shall engage in business as manufacturer, importer or dealer of non-essential goods unless the premises upon which the business is to be conducted shall have been approved by the Commissioner or his duly authorized representative.
D. Every manufacturer of non-essential goods shall, for each and every production plant or storage place, be assigned a permanent and official assessment number, distinct for each paragraph under which he operates. This assessment number must be indicated in his Certificate of Registration and Permit to Operate as an excise taxpayer. This number shall likewise be stamped in the Official Registry Books (ORBs) that will be issued to him by the Commissioner of Internal Revenue or his duly authorized representative. No two (2) manufacturers or importers under the same paragraph shall be given the same assessment number. For manufacturers operating more than one manufacturing plant, a separate assessment number shall be assigned for each and every place of production. When a manufacturer retires from business, his assessment number shall be dropped. When there is a change in ownership of the production plant by reason of sale, transfer, or otherwise, the
Commissioner of Internal Revenue shall not allow the new owner or transferee thereof to use the old assessment number of his vendor or transferee, even if the right to use said assessment number has been included in the sale or transfer. Such assessment number, when dropped from the roll, shall no longer be allowed to be issued to another production plant or establishment. In case of importers of non-essential goods for resale, an assessment number shall likewise be issued for each establishment, storage facility or warehouse.
SECTION 12. Registration of Brand Name and Commercial Labels. – Manufacturers, producers or importers of non-essential goods shall before commencement of actual production or importation, file an application for brand registration showing all kinds and description of such non-essential goods for manufacture or production. In case the new product and/or brand will be produced by such manufacturers, the application for brand registration shall be filed before producing a particular kind/product and/or brand of such non-essential goods. Samples or copies of the corresponding commercial labels to be used or perfumes and toilet waters shall likewise be submitted. Manufacturers desiring to phase-out or cease production of an existing registered brand and model shall immediately inform the BIR of such intention by filing an updated application for brand registration.
SECTION 13. Identification of Non-Essential Goods for Valuation Purposes. – Manufacturers, producers, importers, or dealers of non-essential goods specified under Section 2 (a), (b), (c) and (d) of these Regulations shall be required to attach tags and labels whichever is applicable on finished goods, indicating therein the value of the goods as well as the description of the goods, the unit of measurement expressed in terms of karats for gems and precious stones or carats for precious metals, pieces, etc., whenever applicable. The corresponding sales invoice should state the wholesale price, the amount of excise tax and the unit of measurement expressed in terms of karats or carats, pieces, liters, etc.
SECTION 14. Manufacturer’s or Importer’s Sworn Statement. – Every manufacturer, producer or importer of non-essential goods for resale shall file with the Commissioner of Internal Revenue or duly authorized representative immediately after effectivity of these regulations and every July 15 and January 15 of the calendar year thereafter, and as often as may be required, or for every proposed registration of a new kind of non-essential goods, including its variant, a sworn statement showing among others the following information:
a) Name, address, TIN and Assessment Number of the manufacturer/importer; b) The names of variants of the different products, brands or models of
manufactured articles, if applicable
d) Produc tion/importation costs and all other expenses incurred or to be incurred until the goods are finally sold (e.g. materials, labor, overhead, selling and administrative expenses, etc.) per kind, product, brand or model.
e) Yield or usage ratio of primary raw materials to be used in the assembler or production of non-essential goods up to the brand level, if applicable, of the finished product.
f) In the case of perfumes and toilet waters, the information should include the manner of packing contents per bottle (volume) and cartons (number of bottles per carton) and such other relevant data or information.
The manufacturer or importer shall file an amended sworn declaration of the registered wholesale price of any kind/brand/model of non-essential goods whenever where there is a change on the actual wholesale price thereof or an amended value used by the Bureau of Customs in determining tariff and customs duties net of excise tax and value-added tax. The amended sworn declaration shall be filed before the said brand(s) or model(s) of the goods may be removed from the place of production for sale to wholesalers/distributors or before removal thereof from customs custody, stating therein the amended value used by the Bureau of Customs in determining tariff and customs duties, net of excise tax and value-added tax. No changes in the registered selling price of the non-essential goods shall be allowed unless the corresponding amended sworn statement shall have been submitted to the Commissioner of Internal Revenue.
The declaration on the yield or usage ratio and primary raw materials to be used in the production of non-essential goods per kind, brand or model, shall be submitted only once, before commencement of operations and/or introduction of new kind/brand/model. However, if there are changes in technology or processes that affect the submitted yield ratio, an amended sworn declaration shall be made by the taxpayer immediately before introduction of such changes.
The sworn statement shall be subject to verificatio n by the Commissioner of Internal Revenue or his duly authorized representative to determine its correctness and/or accuracy. For this purpose, the Commissioner of Internal Revenue or his duly authorized representative may examine and/or require the production of the manufacturer’s or importer’s books of accounts or such other documents from which the accuracy and correctness of the sworn declaration may be determined. In case it is determined that the sworn declaration does not accurately and correctly reflect the prices of non-essential goods, the taxpayer shall be assessed the deficiency ad valorem tax, inclusive of surcharges and interests. SECTION 15. Manufacturer’s or Importer’s Bond. – Every manufacturer and/or importer of non-essential goods for resale shall post a surety bond which shall be conditioned upon the faithful compliance with laws and regulations relating to such
business and for the satisfaction of all fines and penalties imposed by the National Internal Revenue Code.
A. The amount of bond to be posted by manufacturers or importers of non-essential goods shall be based on the following conditions:
a) The initial bond shall be One Hundred Thousand Pesos (P100,000.00). However, if the amount of the initial bond is less than the amount of the total excise tax paid after six (6) months of operations, the amount of the bond shall be adjusted to twice the tax actually paid for the period;
b) The bonds for the succeeding years of operation shall be based on the actual total excise taxes paid dur ing the year immediately preceding the year of operation.
B. For new taxpayers, the initial bond shall be posted prior to the issuance of the Permit to Operate as an excise taxpayer. The prescribed posting of bond adjustment, if any, after six (6) months of operations shall be made within the first ten (10) days of the seventh (7th) month of operation. The surety bond prescribed under these regulations shall be renewable annually on or before January 10. No new excise taxpayer commencing operations in any given month other than the month of January are allowed to renew their surety bonds on the commencement of their second year of operations. However, subsequent bond renewal and annually thereafter, it shall be permitted to be made only on or before the 10th day of January.
C. For more effective control and monitoring of the manufacturer’s and importer’s bond herein prescribed, such bond shall be duly registered with the BIR. For registration purposes, the taxpayer thru the RDO having jurisdiction over the place of production or principal place of business in case of importers, shall cause the submission of the original copy of the duly approved bond certificate to the Cash Disbursement and Bonding Section, General Services Division, National Office, for appropriate registration and safekeeping.
D. The following rules must be observed in reference to the bonds required by the internal revenue law to be posted by manufacturers and importers of non-essential goods:
a) The surety bonding company shall be a valid holder of a Certificate duly issued by the Insurance Commission.
b) There shall be not less than two personal sureties. Bonds will not be cancelled, but will be of force and effect for an indefinite period to cover any delinquencies or taxes accrued during the period when the business
covered by said bonds were in operation, but which were not discovered until after said business was abandoned.
c) A new bond may be required in the discretion of the Commissioner of Internal Revenue. A new bond shall be required immediately in case of the death, removal or insolvency of a personal surety on any bond. Executors, administrators, and assignees continuing the business must execute a new bond immediately. Proper references and notations concerning the sureties should be made on the face of each bond, old and new. When, in the opinion of the Commissioner of Internal Revenue, and the interest of the Government demands it, he shall require the amount of a manufacturer’s or importer’s bond to be increased from time to time. In the case of change of ownership of a manufacturing business, the new manufacturer must post a new bond before commencing or continuing the business.
d) All bonds must be executed in triplicate (BIR Office Form No. 455), one copy to be filed with the Office of the Commissioner of Internal Revenue; and the signatures of the principal and sureties must be acknowledge before an internal revenue officer or other officer authorized to take acknowledgements. There shall be attached to each bond the affidavit of sufficiency of each individual surety.
e) When persons who sign bonds either as principals or sureties are unable to write their names in the script of the English language, their signatures may be accepted in the script of whatever language they may use in signing their names, provided such signatures are properly attested by an internal revenue officer.
f) Special attention shall be given to all bonds to the end that they shall be in perfect form as possible in order that no question my arise concerning them should they be placed in suit. All bonds accepted in which alterations and erasures occur should have placed upon them the affidavit of an authorized officer of a surety company, or of the personal sureties thereto, that such alterations or erasures were made after the bond is signed. If changes are desired in a bond, a new bond must be executed. Sureties must agree in writing to all changes of location of a factory. g) The wife of the manufacturer or importer, a partner or member of a firm
operating the factory, or a stockholder in a corporation owning or operating the factory on the establishment will not be accepted as surety on a bond.
h) Regardless of the amount, separate bonds must be furnished for each business which the manufacturer conducts.
i) All bonds must have affixed thereto the documentary stamps provided under Section 185 of the Tax Code, as amended.
j) At least once a year, the Commissioner of Internal Revenue or his duly authorized representative shall cause the examination of all bonds prescribed by these regulations. He shall ensure that the applicable provisions prescribed by these regulations on bonds are properly observed as well as the continuing effectivity of such bonds.
k) All persons required by these regulations to post the appropriate bonds who have failed to properly observe the pertinent provisions prescribed in Section 14 of these Regulations including the maintenance for its continuing effectivity through the payment of its appropriate premiums shall be liable to the applicable penalties without prejudice to the cancellation of their respective permits.
SECTION 16. Prohibition Against Changes or Alterations . – No changes, alterations, or new constructions shall be made in the establishment as per the plat and plan originally approved by the Commissioner of Internal Revenue or his duly authorized representative, nor alterations of new equipment, transferring or putting up of new equipment, transferring or putting up of new warehouse or storage facilities, or any other form of changes or alterations, shall be made without first securing the necessary permit from the Commissioner of Internal Revenue or his duly authorized representative. In case any changes shall be made, the plat and plan, as amended, shall be submitted for approval.
SECTION 17. Requirements Before Removal of Non-essential Goods . – Every removal of non-essential articles from the place of production/storage must be accompanied by a corresponding Withdrawal Certificate.
A. Preparation of Withdrawal Certificates
The Large Taxpayers Field Operations Division (LTFOD) having jurisdiction over the manufacturing plant shall prepare an Official Withdrawal Certificate (BIR Form No. _______) for every removal of products from place of production, irrespective of destination, and shall indicate therein the establishments schedule, paragraph and assessment number, the name, address and TIN of the manufacturer, the name, address and TIN of the consignee, the date of removal, the intended destination of the shipment, the quantity and descrip tion of the product/type or brand removed, and the ad valorem tax paid, where applicable. B. Alteration of prepared Withdrawal Certificates
In case a change on the prepared withdrawal certificate is necessary, the manufacturer shall request the issuance of a new withdrawal certificate in lieu thereof. The old or previously issued withdrawal certificate shall be surrendered
to and officially cancelled by the internal revenue officer assigned at the establishment immediately after the replacement certificate has been issued. The said internal revenue officer shall render a report to the Commissioner of Internal Revenue on the matter and such will form part of his monthly report.
C. Withdrawal Certificate to accompany shipment
The Withdrawal Certificate shall at all times accompany the shipment of the non-essential goods which it covers and shall be attached to the bill of lading if the said products are shipped through a conveyance or other mode of transportation not owned or operated by the consignor/ manufacturer.
Any shipment of non-essential goods not properly accompanied by the prescribed withdrawal certificates shall be deemed prima facie evidence of illegal removal thereof.
SECTION 18. Transfer, Sale or Disposition of Raw Materials, Semi-Processed and/or Intermediate Products.
A. Requirements in case of transfer, sale, or disposition of raw materials
No person or entity engaged in the manufacture of non-essential goods shall remove, transfer, sell, loan or dispose such raw materials, semi-processed and/or intermediate products without prior approval from the Commissioner of Internal Revenue. The request for such transfer, sale or disposition shall contain the following information:
a) Name of transferee and/or consignee;
b) Description of raw materials, semi-processed and/or intermediate products;
c) Volume and/or quantity and unit of measure;
d) Internal withdrawal certificate number or withdrawal certificate number, whichever is applicable.
B. Transfer of raw materials and/or semi-processed articles underbond
Upon prior permit from the Commissioner of Internal Revenue, raw materials, semi-processed and/or intermediate products may be transferred underbond, filed on a case-to-case basis, by the manufacturer to any processing plant for initial manufacture or further assembly into finished products. The bond shall answer for any internal revenue tax arising out of losses, or in such event that the manufactured non-essential goods are not returned to the original transfer or within a reasonable time after it is manufactured. Such transfers shall only be
allowed if the sub-contractor or sub-manufacturer is duly registered as such with the BIR and is holder of a valid Permit to Operate as an excise tax establishment. For this purpose, the subcontractor or sub- manufacturer shall likewise be subject to all the administrative requirements prescribed under these Regulations.
C. Destruction/disposal of wastages or “off-spec” finished products
Wastages or “off-spec” finished products shall not be destroyed or disposed off without a prior permit duly issued by the Commissioner of Internal Revenue or his duly authorized representative; otherwise, the ad valorem tax due thereon shall be assessed and collected inclusive of penalties. A revenue officer shall, at all times, be assigned to supervise and witness the actual destruction or disposal of wastages or “off-spec” finished products.
SECTION 19. Re-manufacture/Repair of “Off Spec” or Damaged Non-Essential Goods . – No non-essential goods which are below specification or damaged shall be returned from the place of production for repair or re- manufacture without prior written permit from the Commissioner of Internal Revenue or his duly authorized representative.
A. The request of permit shall contain the following:
a) Brand/model, quantity, kind/description and product code numbers of “off spec” or damaged non-essential goods;
b) Certified photocopy of the Withdrawal Certificate covering the removal of the original shipment; and
c) Other information the applicant may wish to state in the request.
B. The return of non-essential goods for re- manufacture or repair in the manufacturing plant shall be supervised by internal revenue officer who will submit to the office (LTFOD) a certificate duly confirmed as correct by the authorized representative of the manufacturing plant, stating among others the quantity, kind/description, product code number, engine number in case of yatchs and date it was returned to the plant.
C. The total quantity of returned non-essential goods for re- manufacture or repair received in the manufacturing plant must be entered in the Official Register Books as “In-Process Account” in the column provided for. The ad valorem tax for the removal of re-manufactured or repaired non-essential goods must be paid in the same manner as regularly removed finished products.
SECTION 20. Storage of Tax-Paid Non-Essential Goods . – When the ad valorem tax has been paid on non-essential goods, the same shall not thereafter be stored or permitted to remain in the place of production. All non-essential goods subject to ad
valorem tax which are stored or allowed to remain in the place of manufacture/production after the tax thereon has been paid shall be forefeited.
SECTION 21. Commercial Labels and Packages for Perfumes and Toilet Waters . – Local manufacturers of perfumes and toilet waters subject to ad valorem tax shall indicate in their commercial labels and packages the following information:
a. Name, address and the assessment number of the manufacturer; b. Registered brand name of the article;
c. Volume content per primary container; and
d. Percentage of essential oil by weight per primary container.
For imported perfumes and toilet waters, the importer shall indicate the name, address, and assessment number of the importer for each and every container of such articles.
For perfumes and toilet waters intended for export the primary container shall have labels indicating therein the words “FOR EXPORT” other than the regular requirements mentioned above.
SECTION 22. Invoicing Requirements. – Manufacturers or importers of non-essential articles enumerated in Section 2 of these regulations shall, in addition to the VAT invoicing requirements, indicate in their sales invoices the full description of the articles sold, the unit of measurement, wholesale price (net of excise tax), the corresponding excise tax paid on such article. For wholesalers and retailers, the corresponding amount of excise tax actually passed on to them by the manufacturers or importers on the articles being sold shall be indicated in all copies of the issued sales invoices.
Absence of the information on the excise tax payment in the sales invoice shall be a prima facie evidence that the corresponding excise tax was not paid on the removal of such articles from place of production or release from customs’ custody, as the case may be. However, in case of sale of jewelry that is exempt from payment of excise tax pursuant to R.A. No. 8502, the BOI accreditation number of the accredited jewelry enterprise who has manufactured and sold such product as well as the phrase “EXCISE TAX EXEMPT PER RA No. 8502”, shall be prominently printed or stamped on all copies of the issued sales invoices, in addition to the above invoicing requirements.
SECTION 23. Books and Records to be Kept and Maintained. – Every person or entity engaged in the manufacture, importation or wholesale of non-essential goods shall keep an Official Register Book (ORB) and such other forms or records that may be required by the Commissioner of Internal Revenue which must be kept within the place
of production and shall at all times be made available for inspection by duly authorized internal revenue officer(s).
A. Installation of Official Register Book (ORB). There shall be entered in the ply leaf of the initial Official Register Books at the time of delivery thereof to each importer or manufacturer the following information:
a) the date of delivery of the books, the name, address, TIN, paragraph, schedule and assessment number of the establishment;
b) the beginning inventory, whenever applicable; and
c) a certificate signed by the internal revenue officer delivering the same and attested to by the owner or manager that all the pertinent provisions of the law and regulations governing the operations his establishment. The use of the said official register books and the manner of handling the products in the factory or warehouse have been fully explained to such manager and owner and that he fully understands the same and knows the penalties imposed for the disregard thereof. The original copy of this certification shall be forwarded to the Large Taxpayers Assistance Division II (LTAD II), the duplicate copy shall be forwarded to the Chief, Large Taxpayers Field Operations Division (LTFOD) and the triplicate copy shall permanently form part of the Official Register Book (ORB).
B. Records to be Kept by Importers – Every person or entity engaged in the importation of non-essential goods for purposes of resale shall keep an Official Register Book wherein the following information shall be entered: a) On the debit side – Date of arrival of importations, subsidiary document
reference (e.g. Customs Formal Entry Declaration), description of non-essential goods, quantity actually received, amount of ad valorem taxes paid, number/validation of the covering payment at BOC and the date of payment.
b) On the credit side – Date of removal/sale, name and address of consignee, description of product removed, quantity and remarks.
c) Resume – Totals of the beginning balances, importations during the month sales for the month, and the ending balance per kind of non-essential goods.
C. Records to be Kept by Wholesale dealers - Every person or entity engaged in business as wholesale dealer of non-essential goods shall keep and maintain an Official Register Book (ORB) containing the following information:
a) On the debit side – Date of purchase of non-essential goods, document reference (e.g. Sales Invoice/Delivery Receipt), description of non-essential goods and quantity actually received and name and address of the supplier.
b) On the credit side – Date of sale, name and address of buyer, description of non-essential goods sold and quantity sold
c) Resume – Totals of the beginning balances, purchases during the month, sales for the month and the ending balances of non-essential goods per kind/brand/model.
D. Records to be Kept by Manufacturers. The Official Register Book to be kept and maintained by manufacturers of non-essential goods shall basically consist of the following:
a) Raw Materials Account
1. Debit Side – On this side, shall be recorded all raw materials such as, but not limited to, precious metals, gems, precious stones and other raw materials received and intended to form part of, or to be used in the manufacture of non-essential goods. This Account shall reflect the kind of raw materials received, the date of receipt, the name and address of the supplier, the kind of non-essential goods for which the raw material is intended. For this purpose, raw material ledgers of the manufacturer shall form part of this Account as subsidiary books. 2. Credit Side – On this side, shall be recorded the date of requisition,
document reference number, the quantity issued and the kind of non-essential goods for which the raw material is intended. Any sale, transfer or removal of raw materials other than issuances for use in manufacturing shall be separately recorded in the credit column.
b) In-Process Account
1. Debit Side – On this side shall be recorded the quantity of all raw materials issued to production and the date of issuance thereof.
2. Credit Side – On this side shall be recorded the date of completion of assembly and quantity of manufactured non-essential goods.
c) Production and Removals Account
1. Debit Side – On this side, for every type or kind/model of completely manufactured non-essential goods, on which the same excise tax rate will apply there shall be maintained a separate production and
removals account. The beginning inventory taken upon installation of the Official Register Books shall be the initial entry on the Production and the date the non-essential good(s) was received or removed from the manufacturing premises.
2. Credit Side – On this side, removal of non-essential goods from the place of production shall be recorded indicating therein the date of removal, the quantity, the kind/description, engine number, whenever applicable to the product, name of collection agent bank and the bank validation number, date paid and amount paid, or if removed free of tax, the date of issuance of Certificate of Exemption or permit granted by the Commissioner of Internal Revenue.
3. Resume – Totals of the beginning balances, production during the month, removals for the month, and the ending balances of non-essential goods per kind/brand/model.
SECTION 24. Reports and Other Records . – Whenever applicable, the following reports shall be submitted by the manufacturer, wholesale dealer or importer of non-essential goods:
A. Daily Summary of Removals – The daily summary of all removals of non-essential goods inc luding the corresponding Withdrawal Certificates issued, and the names and addresses of consignee shall be prepared and submitted by the manufacturers of non-essential goods weekly to the LTFOD. For purposes of this Section, the deadline for submission of the daily summary report shall be as follows:
Transaction Dates Date of Submission
1st to 7th day of the month On or before the 10th day of the month 8th to 15th day of the month On or before the 18th day of the month 16th to 22nd day of the month On or before the 25th day of the month 23rd to end of the month On or before the 3rd day of the following
month
B. Monthly Transcript Sheets to be rendered. Every manufacturer, importer or wholesale dealer of non-essential goods shall prepare in three (3) sets a true and exact transcript of all entries made on both the debit and credit sides of his Official Register Book during the preceding month including all entries made by the internal revenue officer, and shall strike a balance in said books and on said transcript sheets showing the balance of the stocks on hand, if any. Said balance of stock shall be carried over as the first entry for the next month on the Official Register Books. The original copy of the first set should be transmitted to the LTFOD not later than the 8th day of the succeeding month. The second set should be submitted to LTAD II and the third set to remain on file with the manufacturer, importer or wholesale dealer. Each manufacturer,
importer or wholesale dealer or his duly authorized representative shall certify at the foot each page of his Official Register Books and copies of transcript sheets that the entire entries therein are true and are exact copies of the entries contained in the original records and subsidiary records of the establishment. SECTION 25. Information to be given by Manufacturers, Importers, Indentors, and Wholesalers of Apparatus or Mechanical Contrivances specifically for Manufacture of Non-Essential Goods . – All manufacturers, indentors, wholesalers and importers of any apparatus or mechanical contrivances is removed from the place of manufacture or from customs custody, give a written information to the Commissioner of Internal Revenue as to the nature, quantity, and capacity of the same, the date and time when it is to be removed, name of the person or entity by whom it is to be used, and the place of its destination.
SECTION 26. Custody of the Manufacturing Plant and Assignment of Revenue Officers . – For internal revenue purposes, the place of production and storage of non-essential goods are under the joint custody of the Bureau of Internal Revenue and the manufacturer or importer concerned. The Commissioner of Internal Revenue or his duly authorized representative may assign internal revenue officer(s) as the need so requires for an effective supervision of the operations of non-essential goods manufacturers and importers to secure a sanitary output and to safeguard the revenue collection. The manufacturer shall provide suitable office space and equipme nt for the use of the internal revenue officer(s) assigned thereat, who shall render eight (8) hours service daily, excluding Saturdays, Sundays and holidays. Such office space shall be strategically located in a place that is adjacent to the production and removal areas. It shall be designed in such manner that the assigned revenue officer (s) can have a clear and unobstructed view of the taxpayer’s production and removal activities. Should overtime service be required, an advance notification to that effect should be filed with the LTFOD office.
SECTION 27. Inventory Taking/Investigation. – After every six (6) months, reckoned from the date of the initial or last stocktaking, or at anytime the Commissioner of Internal Revenue may direct, an inventory taking shall be conducted on the finished goods, raw materials and intermediate or in-process product of the manufacturers, producers, importers or dealers of non-essential goods in the presence of the representative of the company, who shall jointly attest to the results thereof. A spot-checking or verification of the operation of the establishments and the up-to-date maintenance of the prescribed records may be conducted at any time as may be directed by the Commissioner or his duly authorized representative to determine compliance with existing laws and regulations and/or to ascertain a specific fact or figure.
SECTION 28. Penalties. – Violations of these regulations shall be subject to the pertinent penalties under Title X of the National Internal Re venue Code, as amended.
SECTION 29. Repealing Clause. – All regulations, rulings or orders, or portions thereof which are inconsistent with the provisions of these regulations are hereby revoked.
SECTION 30. Effectivity. – These regulations shall take effect immediately upon approval hereof.
JOSE ISIDRO N. CAMACHO Secretary of Finance
Recommending Approval:
GUILLERMO L. PARAYNO, JR. Commissioner of Internal Revenue
