PRESIDENTIAL DECREE NO. 1991, October 31, 1985
RESTRUCTURING AND AMENDING CERTAIN PROVISIONS OF THE NATIONAL INTERNAL REVENUE CODE TO BE KNOWN AS THE “SALES TAX REFORM DECREE OF 1985”
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
Republic 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 herein-above 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 person.“(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 distinct
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 valoren penalties. — (a) Failure to file and pay the
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 herein-below 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) Harpsicord 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 equipments and
accessories;“(k) Pianos, electric or electronic musical organ;
“(1) 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; 118“(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
Section 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 Section 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 b’y 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.”
SECTION 3. Sec. 200 of the Tax Code is hereby amended to
read as follows:
“Section 200. Credits against sales toe.—(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 the 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 amount 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. Section 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
Section 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 or 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. Section 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) Proffessional 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, aircraft 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; and aircrafts 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 Section 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. Section 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
reregister their business in a manner and form within s period to be prescribed
by the Commissioner after the effectivity of this Decree.
SEC. 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.
SEC. 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.