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Presidential Decree No. 1991

PHILIPPINE LAWS, STATUTES AND CODES - CHAN ROBLES VIRTUAL LAW LIBRARY

PRESIDENTIAL DECREES





PRESIDENTIAL DECREE NO. 1991

PRESIDENTIAL DECREE NO. 1991 - RESTRUCTURING AND AMENDING CERTAIN PROVISIONS OF THE NATIONAL INTERNAL REVENUE CODE TO BE KNOWN AS THE "SALES TAX REFORM DECREE OF 1985"


WHEREAS, the current economic crisis amounts to a grave emergency which affects the stability of the nation and requires immediate action;

WHEREAS, there is an imperative need to simply and restructure certain provisions of the National Internal Revenue Code, particularly those imposing sales taxes;

WHEREAS, the present sales tax system prescribes complicated and difficult compliance requirements for taxpayers which in turn creates serious problems of administration;

WHEREAS, it is the consensus of various business sectors that the multiplicity of sales tax rates have adversely affected to a great extent the conduct of their business;

WHEREAS, the issuance of this Decree is an essential and necessary component of the national economic recovery program formulated to meet and overcome the emergency.

NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines, by virtue of the powers vested in me by the Constitution, do hereby order and decree:

Section 1. Section 193 of the Tax Code is hereby amended to read as follows:

"Sec. 193. Returns and payment of sales and other taxes. – (1) Return of gross sales, receipts, etc. and payment of tax. (a) Persons liable to pay sales tax on original sales and other percentage taxes. – Every person liable to pay any percentage tax imposed under this Title, other than the sales tax on second sale, shall file a quarterly return of the amount of his gross sales, receipts or earnings or gross value of output actually removed from the factory or mill warehouse and to pay the tax due thereon within twenty days, after the end of each taxable quarter.

"(b) Persons liable to sales tax on second sale. – Every person liable to pay sales tax on second sale shall file a monthly return of his gross sales or receipts and pay the tax due thereon within ten days after the end of each month.

"(c) Persons retiring from business. – Any person retiring from a business subject to percentage tax shall notify the nearest internal revenue officer, file his return and pay the tax due thereon within twenty days after closing his business.

"(d) Exceptions. – The Commissioner may, by regulation, prescribe:

(1) the time for filing the return at intervals other than the time prescribed in the preceding paragraphs for a particular class or classes of taxpayers after considering such factors as volume of sales, financial condition, adequate measures of security, and such other relevant information required to be submitted under the pertinent provisions of this Code; and

(2) the manner and time of payment of sales and other percentage taxes other than as hereinabove prescribed, including a scheme of tax prepayment.

"(e) Presumption of sales. – (i) Sales on consignment. – For purposes of this Section, sales on consignment shall be considered actually sold on the day of sale or sixty days after the date consigned, whichever is earlier.

"(ii) Determination of correct sales or receipts. – When it is found that a person has failed to issue receipts or invoices, or when no return is filed or when there is reason to believe that the books of accounts or other records do not correctly reflect the declarations made or to be made in a return required to be filed under the provisions of this Code, the Commissioner, after taking into account the sales, receipts or other taxable base of other persons engaged in similar business under similar situations or circumstances, may prescribe a minimum amount of such gross receipts, sales and taxable base and such amount so prescribed shall be prima facie correct for purposes of determining the correct sales tax liabilities of such persons.

"(2) Where to file. – (a) Persons subject to sales tax on original sale. Every manufacturer, producer or importer shall file the required return with the Revenue District Officer, Collection Agent or duly authorized Treasurer of the city or municipality where such taxpayer has his legal residence or principal place of business.

"(b) Persons subject to sales tax on second sale. – Every person subject to sales tax on second sale shall file a separate return with the Revenue District Officer, Collection Agent or duly authorized Treasurer of the city or municipality where each and every separate branch or distinct place of business is located; Provided, That a taxpayer may elect to file a consolidated return for all the branches or places of business located within the same revenue district with the Revenue District Officer concerned.

"(c) Persons subject to other percentage taxes. – Every person other than those mentioned in paragraphs (a) and (b) above, who is required to file a percentage tax return under this Title shall, at his option, file either a separate return with the Revenue District Officer, Collection Agent or duly authorized Treasurer of the city or municipality where each separate or district place of business is located, or a consolidated return with the same officers mentioned herein where such taxpayer has his legal residence or principal place of business.

"The foregoing provisions notwithstanding, the Commissioner may, in a meritorious case and upon request of the taxpayer, allow the filing of the return with any other authorized revenue officer.

"(3) Ad valorem penalties. – (a) Failure to file and pay tax. – In case of failure to file the required percentage tax return, or if the percentage tax return is filed with a person other than those mentioned in the preceding subparagraphs, or if the percentage tax due on the return is not paid within the time specified above, the amount of the tax shall be increased by 25%, the increment to be a part of the tax and the entire unpaid amount shall be subject to interest at the rate of 20% per annum from the due date until it is paid.

"(b) Willful neglect to file, or filing false or fraudulent return. – In case of willful neglect to file the return within the period prescribed herein, or in case a false or fraudulent return is willfully made, there shall be added to the tax or to the deficiency tax in case any payment has been made on the basis of such return before the discovery of the falsity or fraud, a surcharge of 50% of its amount and the entire unpaid amount shall be subject to interest at the rate of 20% per annum from due date until it is paid. The amount so added to any tax shall be collected at the same time and in the same manner and as part of the tax unless the tax has been paid before the discovery of the falsity or fraud, in which case the amount so added shall be collected in the same manner as the tax.

"(4) Imported articles. – When the articles are imported, the percentage taxes established in Sections 194, 195 and 196 (A) (1) (2) and (3) of this Code shall be paid in advance by the importer prior to the release of such articles from customs custody, based on the total value used by the Bureau of Customs in determining tariff and customs duties, including customs duties and other charges. On the original sale, barter, exchange or transfer of such imported articles by the importer himself, there shall be levied, assessed and collected a sales tax at the same rate on the gross value in money of the articles so sold, bartered, exchanged or transferred; Provided, That the tax paid in advance by the importer shall be credited against the sales tax due on the original sale. The tax required to be paid herein shall not apply to articles to be used by the importer himself in the manufacture or preparation of articles subject to specific tax under Title IV of this Code: Provided, however, That 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 specific tax, the importation of such raw materials shall be subject to the tax herein imposed."

Sec. 2. Sections 196, 197, 198, 199 and 201 of the Tax Code are hereby consolidated and renumbered as Section 196 and amended to read as follows:

"Sec. 196. Sales Taxes. – (A) On original sales of articles. – There shall be levied, assessed, and collected once only on every original sale, barter, exchange, or similar transaction intended to transfer ownership of, or title to, the articles hereinbelow enumerated, a sales tax to be paid by the manufacturer, producer or importer:

"(1) Semi-essential articles: 30% of the gross selling price or gross value in money of the following articles so sold, bartered, exchanged or transferred:

"(a) Luggage, trunks, valises, travelling bags, suitcases, satchels, overnight bags, hat boxes for use of travelers, beach bags, bathing suit bags, brief cases made of leather or imitation leather, and salesman's sample and display cases; handbags, cards, pass and key cases; toilet cases and other cases, bags and kits (without regard to size, shape, construction, or material from which made) for use in carrying toilet articles or articles of wearing apparel;

"(b) Harpsichord and accordions;

"(c) Firearms and cartridges or other forms of ammunitions;

"(d) Electric, gas or oil water heaters; electric, gas or oil appliances, stoves and ranges; electric mixers, whippers, and juicers; and household type electric vacuum cleaners or polishers;

"(e) Washing machines, cloth dryers and combination washing and cloth dryers of all types;

"(f) Mechanical lighters;

"(g) Textiles wholly or in chief value of silk, wool, linen; nylon or other synthetic and/or chemical fabrics except those primarily intended for clothing; wool and silk hats; and furs and manufactures thereof;

"(h) Toys and playthings of all sorts;

"(i) Beverage coolers, ice cream cabinets, water coolers, food and beverage storage cabinets, ice-making machines, and mild cooler cabinets, each having, or being primarily designated for use with a mechanical refrigerating unit operated by electricity, gas, kerosene, or other means;

"(j) Electricity and/or battery operated beauty equipment and accessories;

"(k) Pianos, electric or electronic musical organ;

"(l) Fountain pens;

"(m) Chairs, sofas, beds, show casas, lockers, cabinets, except filing cabinets and dental chairs;

"(n) Watches, clocks, cases and movements therefor;

"(o) Electric fans and exhaust fans;

"(p) Television sets, phonographs or gramophones, combination radio-phonograph set, tape recorders, video tape recorders, tape decks, car stereos, cassette-radio, and similar articles for reproducing and/or recording music, sound and images and any combinations thereof;

"(q) Household type refrigerators and freezers; and

"(r) Air-conditioning units; and

"(s) Similar or analogous articles to those mentioned above.

"(2) Other articles. – 20% of the gross selling price or gross value in money of articles not covered by Sections 194 and 195 and subsections 1, 3 and 4 hereof so sold, bartered, exchanged, or transferred.

"(3) Essential articles. – 10% of the gross selling price or gross value in money of the following articles so sold, bartered, exchanged, or transferred;

"(a) Processed meat, beverages, vegetables, milk and dairy products, fish and other sea foods;

"(b) Wheat flour;

"(c) Bread and ordinary bakery products;

"(d) Medicine;

"(e) Laundry soap and detergents; and

"(f) Writing pads, notebooks and ordinary lead pencils;

"(4) Agricultural products. – 1% of the gross selling price or gross value in money of the following articles when sold, bartered or exchanged by the producer or owner of the land where produced except those subject to tax under Sec. 203:

"(a) Agricultural food products including ordinary salt and all kinds of fish and its by-products whether in their original state or not; and

"(b) Agricultural non-food products whether in their original state or not.

"The phrase whether in their original state or not includes the transformation of said products by the application of simple processes to preserve or otherwise prepare said products for the market such as freezing, drying, salting, smoking or stripping. Rice and corn shall be considered in their original state even if they have undergone milling.

"(5) Percentage tax on sales of indigenous petroleum. – Notwithstanding the provisions of Sec. 202 of this Code, there shall be levied, assessed, and collected once on the first taxable sale, barter, exchange or similar transaction intended to transfer ownership of or title to indigenous petroleum, a tax equivalent to 27-1/2% of the fair international market price thereof, such tax to be paid by the buyer or purchaser within fifteen (15) days from the date of actual or constructive delivery to the said buyer or purchaser. The phrase 'first taxable sale, barter, exchange or similar transaction' means the transfer of the indigenous petroleum in its original state to a first taxable transferee. The fair international market price shall be determined in accordance with regulations to be promulgated by the Minister of Finance upon the recommendation of the Commissioner of Internal Revenue in consultation with an appropriate government agency.

"For purposes of this subsection, 'indigenous petroleum' shall include locally extracted mineral oil, hydrocarbon gas, bitumen, crude asphalt, mineral gas and all other similar or naturally associated substances with the exception of coal, peat, bituminous shale and/or stratified mineral deposits.

"In enforcing the provisions of this subsection, Section 12 and the relevant provisions of Chapter II of Title IV of this Code shall apply.

"(B) On second sale of articles. – There shall be levied, assessed and collected on every second sale, barter, exchange or similar transaction for nominal or valuable consideration intended to transfer ownership of or title to any article subject to sales tax on original sale, article subject to the miller's tax and article subject to specific tax under Title IV a tax equivalent to 3% of the gross selling price or gross value in money of the article so sold; bartered, exchanged or transferred, such tax to be paid by the seller thereof; Provided, however, That the second sale of agricultural food products in their original state shall be subject to 0% rate.

"Unless the tax under this subsection 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."

Sec. 3. Sec. 200 of the Tax Code is hereby amended to read as follows:

"Sec. 200. Credits against sales tax. – (a) Credible taxes. – Any specific, sales or miller's tax paid under Title IV and Title V of this Code, on domestically manufactured, processed, produced or imported raw materials, part, accessory or other article locally purchased or imported by the manufacturer for conversion into or intended to form part of any finished product for sale shall be credited against the sales tax due on the original sale of the finished product.

"In the case of purchase of raw materials, parts and accessories by a manufacturer from a duly registered and accredited dealer, the amount of tax passed on to the dealer as well as the sales tax on second sale, if indicated as separate items in the dealer's sales invoice shall be allowed as credits against the sales tax due on the finished product. Any advance sales tax paid on imported articles shall be credited against the sales tax due on original sale of such imported article.

(b) Tax on tax-exempt products of pioneer enterprises registered with the Board of Investments deemed paid. – 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.

(c) Excess tax credit. – In case the total tax paid on the raw material, part, accessory or other article exceeds the amounts of the sales tax due on the finished product, the excess shall be credited against the sales tax liability of the manufacturer in the succeeding taxable quarter or quarters: Provided, That the amount of tax on the raw material, part, accessory, or other article shall be indicated as a separate item in the sales invoice; and Provided, further, That any tax credit corresponding to the raw materials which are subsequently sold, transferred, disposed of, or those used in the manufacture of articles which are not for sale, such as samples and promotional giveaways, or those for any other reason, can no longer be used in the manufacture of the finished product, shall either be deducted from any unused tax credit or paid as a part of the tax due in the quarter following the disposal; and Provided, finally, That in the case of an importer, if the advance sales tax paid on imported articles exceeds 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."

Sec. 4. Sec. 202 of the National Internal Revenue Code is hereby amended to read as follows:

"Sec. 202. Articles and transactions not subject to sales tax. – The following shall be exempt from the sales tax imposed in Sections 194, 195 and 196.

"(a) Original sales of manufacturers, producers and importers of articles subject to the specific tax imposed under Title IV and miller's tax under Sec. 203 of this Code;

"(b) Second sale of manufactured oils and other fuels except lubricating oil, processed gas, grease, wax, and petrolatum;

"(c) .22 caliber firearms and cartridges as well as other forms of ammunitions sold or delivered directly to the Armed Forces of the Philippines or any government instrumentality or agency engaged in maintaining peace and order for their use or issue;

"(d) Articles shipped or exported by the manufacturer, producer, or trader, irrespective of any shipping arrangement that may be agreed upon which may influence or determine the transfer of ownership of the articles so exported. Any specific, sales of advance sales tax paid under this Title or Title IV on domestically manufactured or imported raw materials used in the manufacture and forming part of the finished products exported shall be allowed as a tax credit against any internal revenue tax liability directly due from the manufacturer exporting said products: Provided, That the amount of the tax on locally purchased raw material, part, accessory, or other article is indicated as a separate item in the sales invoice of the supplier from whom it was last purchased; and Provided, further, That the direct exporter shall file an application for tax credit within one year from the close of the taxable year in which the export was effected. In case finished products are exported by an export trader other than the manufacturer, the entire amount of sales and specific taxes separately indicated in the sales invoice of the immediate seller of the finished products exported shall be allowed to be credited against other tax liabilities of the export trader subject to the filing of an application as herein prescribed;

"(e) Sales by 'registered export producers' to (1) other 'export producers', (2) 'registered export traders' or (3) foreign tourists or travelers, which are considered as 'export sales';

"(f) Sales by manufacturers, producers on traders direct to foreign tourists and paid for in convertible foreign currency if the articles so sold are actually brought out of the Philippines by the buyers upon their departure; and

"(g) Those that may be granted by the President upon recommendation of the National Economic Development Authority in the interest of economic development."

Sec. 5. Sec. 204 of the National Internal Revenue Code is hereby amended to read as follows:

"Sec. 204. Compensating tax. – (a) Taxable articles. – There shall be imposed upon the importer of commodities, goods, wares, or merchandise brought into the Philippines, as compensating tax equivalent to the rates prescribed in Sections 194, 195 and 1961 (A) (1) (2) and (3) based on the total value used by the Bureau of Customs in determining tariff and customs duties, including customs duty and all other charges, such tax to be paid before the withdrawal of the said commodities, goods, wares or merchandise from customhouse or the post office.

"(b) Articles not subject to the compensating tax. – The provisions of existing laws to the contrary notwithstanding, but without prejudice to Presidential Decree No. 1395, the following are not subject to compensating tax:

"(1) Articles subject to tax under Sections 194, 195 and 196 of this Code;

"(2) Articles subject to the specific tax under Title IV of this Code and articles to be used by the importer himself in the manufacture or preparation of articles subject to specific tax;

"(3) Articles to be used by the importer himself as operator of passenger and/or cargo vessel of more than ten thousand tons, whether coastwise or ocean-going, including engine and spare parts of said vessel;

"(4) Personal and household effects belonging to residents of the Philippines returning from abroad and non-resident citizens coming to resettle in the Philippines and accompanying them upon their return or arriving within ninety days before or after their arrival, which are exempt from customs duty under Section 105 of the Tariff and Customs Code;

"(5) Professional instruments and implements, tools or trade, occupation or employment, wearing apparel, domestic animals, and personal household effects belonging to persons coming to settle for the first time in the Philippines, for their own use and not for barter, sale or exchange, accompanying such persons, or arriving within ninety days before or after their arrival, upon the production of evidence satisfactory to the Commissioner, that such persons are actually coming to settle in the Philippines, that the articles were bought from their former place of abode, that the change of residence is bona fide; Provided, That the vehicle, vessel,rcraft or merchandise of any kind, machinery or other articles for use in manufacture, shall be classified under this subsection;

"(6) Those granted in pursuance of or in compliance with international treaties or commitments, such as the ADB-RP Headquarters Agreement (1966); the 1947 Convention on Privileges and Immunities of the United Nations and its specialized agencies; the United States Agency for International Development-RP Agreement; and the RP-US Military Bases Agreement and other similar treaties or commitments;

"(7) Machineries, equipment, tools for production, plants to convert mineral ores into saleable form, spare parts, supplies, materials, accessories, explosives, chemicals, and transportation and communication facilities imported by and for the use of new mines and old mines which resume operations, when certified to as such by the Ministry of Natural Resources upon the recommendation of the Director of Mines, for a period ending five (5) years from the first date of actual commercial production of saleable mineral products: Provided, That such articles are not locally available in reasonable quantity, quality and price and are necessary or incidental to the proper operation of the mine; andrcrafts imported by agro-industrial companies to be used by them in their agricultural and industrial operations or activities, spare parts and accessories thereof; and

"(8) Those that may be granted by the President upon recommendation of the National Economic Development Authority in the interest of economic development.

"In the case of tax-free articles brought or imported into the Philippines by persons, entities, or agencies exempt from tax which are subsequently sold, transferred or exchanged in the Philippines to non-exempt persons or entities, the purchasers or recipients shall be considered the importers thereof, and shall be liable for the duty and internal revenue tax due on such importation. In any event where the importer becomes liable for advance sales tax, or in any case where an article is imported or brought into the Philippines without payment of either the compensating or advance sales tax or specific tax, as the case may be, the importer thereof shall be liable for the duty and internal revenue tax on such importation. The tax due on such articles shall constitute a lien on the article itself, superior to all other charges or liens, irrespective of the possessor thereof."

Sec. 6. A new Section is added to Chapter 11 of Title XII of the National Internal Revenue Code to read as follows:

"Sec. 345-A. Allotment for the Bureau of Internal Revenue. – An amount equivalent to five percent of the excess of actual collections of national internal revenue taxes over the collection goal shall accrue to the special fund of the Bureau of Internal Revenue and shall be treated as receipts automatically appropriated. Said amount shall be utilized as incentive bonus for revenue personnel, purchase of necessary equipment and facilities for the improvement of tax administration, as approved by the Commissioner: Provided, That the President may, upon recommendation of the Commissioner, direct that the excess be credited to a Special Account in the National Treasury to be held in reserve available for distribution as incentive bonus in subsequent years.

"The Minister of Finance is hereby authorized to transfer from the Treasury an amount equivalent to the percentage as herein fixed and to remit the same direct to the Bureau of Internal Revenue under such regulations as may be promulgated by the Minister of Finance."

Sec. 7. Paragraph (2) (a) of Sec. 290-B is hereby amended to read as follows:

"Sec. 290-B. Flexibility clause. –

"(21) Specific limitations on the exercise of authority to make adjustments in all internal revenue taxes;

"(a) The existing tax rates may be increased or decreased by not more than 50%: Provided, however, That in the case of the sales tax on second sale of agricultural food products sold in their original state or where such agricultural food products merely have undergone the simple processes, the existing rate may be increased to not more than 3%."

Sec. 8. Sec. 344 of the Tax Code is hereby amended by adding a new paragraph (c) to read as follows:

"(c) Five percent (5%) of the total tax collected on second sale under Section 196 of this Code shall accrue to the city or municipality in which the tax is collected, and another five percent (5%) of the total annual tax collected on said second sales shall also accrue to the Ministry of Education, Culture and Sports."

Sec. 9. The Bureau of Internal Revenue shall update the date and information on persons liable to the sales tax on second sale. For purposes of this section, all persons liable to the sales tax on second sale shall register their business in a manner and form within a period to be prescribed by the Commissioner after the effectivity of this Decree.

Section 10. All laws, decrees, executive orders, and regulations and other issuances or parts thereof which are inconsistent with this Decree are hereby repealed, amended or modified accordingly.

Section 11. Effectivity. – The provisions of this Decree shall take effect on January 1, 1986, except the sales tax on second sale, the allotments of cities, municipalities and the incentive allotment for revenue personnel which shall take effect on November 1, 1985.

DONE in the City of Manila, on this 31st day of October, in the year of Our Lord, nineteen hundred and eighty-five.
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