FURTHER AMENDING CERTAIN PROVISIONS OF THE NATIONAL INTERNAL REVENUE CODE

WHEREAS, certain raw material inputs are taxable at higher rates
than the finished article which may result in accumulation of excess tax
credits;

WHEREAS, certain articles presently classified as ordinary
articles should be considered as essential articles for sales tax
purposes;

WHEREAS, to achieve the effect of placing the raw materials
and finished products at essentially the same rate of tax on finished articles
under the existing tax credit system;

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. Paragraph (c) of Section 162 of the National
Internal Revenue Code, as amended, is hereby further amended to read as
follows:

“(c) Imported articles. —When the articles are imported, the
percentage taxes established in Sections 163, 164 and 165 (A) 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 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 excise 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 excise tax, the
importation of such raw materials shall be subject to the tax herein
imposed.”

SEC. 2. Sub-paragraph (3), paragraph (A) of Section 165 of
the National Internal Revenue Code, as amended, is hereby further amended to
read as follows:

“(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, fruits, vegetables, fish and other sea foods;

“(b) Beverages and concentrates thereof, whether in liquid, powder or
granulated form, intended for consumption as a drink, including but not limited
to processed coffee, cocoa, tea or ginger;

“(c) Processed milk, dairy products, butter and its substitutes like
margarine;

“(d) Cooking oil which are not subject to miller’s tax under Section 168 of
this Code;

“(e) Wheat flour;

“(f) Bread and ordinary bakery products;

“(g) Medicine;

“(h) Laundry soap and detergents;

“(i) Writing pads, notebooks and ordinary lead pencils;

“(j) Cement, hollow blocks, logs, lumber, plywood, plywood, plyboard,
fiberboard glass, roofing materials, steel bars, nails, sand and gravel;

“(k) Fish, poultry, swine and cattle feeds; and

“(l) Fertilisers.”

SEC. 3. Section 165 of the National Internal Revenue Code is
hereby further amended by adding a new paragraph thereto to read as follows:

“Any part or accessory of the articles under Subsection (A) shall be taxed at
the same rate as the finished articles.”

SEC. 4. Section 166 (c) of the National Internal Revenue
Code is hereby amended to read as follows:

“(c) xcess tax credit.—If at the end of a taxable year, 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 manufacturer or producer may elect
to:

“1. Carry over such excess or a portion thereof to be credited against his
sales tax liability in the succeeding taxable quarter or quarters; or

“2. File an application for the issuance of a tax credit certificate for such
excess or a portion thereof which can be used in payment of any advance sales
tax; or

“3. Deduct such excess or a portion thereof from gross income for income tax
purposes: Provided, That the amount of the tax on raw material, part,
accessory, or other article shall be indicated as a separate item in the sales
invoice; and Provided, further, That the amount of tax credits opted
for and any tax credit corresponding to the raw materials which are subsequently
sold, transferred, disposed of, or, for any other reason, can no longer be used
in the manufacture of the finished product for sale, 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, in any quarter, the
excess shall be credited against the sales tax liability of the importer in the
succeeding taxable quarter or quarters.”

SEC. 5. Paragraph (a) of Section 169 of the National
Internal Revenue Code, as amended, is hereby further amended to read as
follows:

“(a) Taxable articles. —There shall be imposed upon the importer of
commodities, goods, wares, or merchandise brought into the Philippines, a
compensating tax equivalent to the rates prescribed in Sections 163, 164 and 165
(A) 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 customshouse or the post office.”

SEC. 6. Effectivity.—The options on excess tax
credits can be availed of by the manufacturer or producer on the balance of
deferred tax credits existing as of the end of his taxable year following the
effectivity of this Decree.

All other provisions of this Decree shall take effect on January 1st,
1986.

Done in the City of Manila, this 4th day of February, in the Year of Our
Lord, nineteen hundred and eighty-six.

			(Sgd.) FERDINAND E. MARCOS President of the Philippines
	By the President:
	(Sgd.) JUAN C. TUVERA
		Presidential Executive Assistant