Policy, purpose, and intent
- The Decree is enacted to reduce the tax imposed on second sale and to distribute the tax burden more equitably at every stage of subsequent sale.
- The Decree provides that a tax on subsequent sale simplifies tax administration and insures voluntary tax compliance.
- The Decree is also intended to alleviate the tax burden on the agricultural sector to hasten economic development.
Legal framework amended and modified
- Section 162 of the Tax Code is amended to reshape rules on returns, payment, filing locations, presumptions of sales, and consignment timing.
- Section 165(A)(3) is amended to reduce the tax rate on agricultural products in their original context.
- Section 165(A)(4) is amended to reduce the one percent sales tax on agricultural products to 0%.
- Section 165(B) is amended to impose a sales tax on every subsequent sale at a new 1.5% equivalent rate, with agricultural products in original state taxed at 0%, subject to Section 167.
- Section 166(a) is amended to tighten rules on credits against sales tax and conditions for creditability.
- Section 167 is amended to expand the list of articles and transactions exempt from sales tax.
- Section 181 is amended to strengthen rules on issuance of receipts and invoices, thresholds, retention periods, and a Commissioner exemption power.
- Section 241(2)(a) is amended (flexibility clause) to adjust the allowed range for tax rate adjustments, including a special rule for certain agricultural sales rates.
- Section 319(c) is amended to adjust the distribution of specified portions of subsequent-sales tax collections to local government and an education fund.
Sales tax returns, payment, filing rules
- Persons liable to pay any percentage tax imposed under the Title (other than the sales tax on subsequent sale) must file a quarterly return of gross sales/receipts/earnings or gross value of output actually removed from factory or mill warehouses and pay the tax due within twenty days after the end of each taxable quarter (Section 162(a)(1)).
- Persons liable to pay sales tax on subsequent sale must file a monthly return of gross sales and pay the tax due within ten days after the end of each month (Section 162(a)(2)).
- Any person retiring from a business subject to percentage tax must notify the nearest internal revenue officer, file the return, and pay the tax due within twenty days after closing the business (Section 162(a)(3)).
- The Commissioner may prescribe, by regulations:
- filing times at intervals other than the prescribed times for particular classes, considering volume of sales, financial condition, adequate measures of security, and other relevant submitted information (Section 162(a)(4)(i)); and
- the manner and time of payment, including a tax prepayment scheme for sales and other percentage taxes (Section 162(a)(4)(ii)).
- For returns and payment, “where to file” rules require filing with the appropriate Revenue District Officer, Collection Agent, or duly authorized Treasurer depending on taxpayer type and location (Section 162(b)):
- Millers, manufacturers, producers, or importers file where their principal place of business is located (Section 162(b)(1)).
- Persons subject to sales tax on subsequent sale file a separate return for each branch or distinct place of business, located in the city or municipality where each branch/place is (Section 162(b)(2)).
- A taxpayer may elect to file a consolidated return for all branches/places within the same revenue district with the concerned Revenue District Officer (Section 162(b)(2)).
- Other percentage-tax persons file either separate returns for each distinct place or a consolidated return where the principal place of business is located, at their option (Section 162(b)(3)).
- In meritorious cases and upon request, the Commissioner may allow filing with any other authorized revenue officer (Section 162(b)(3)).
- When articles are imported, the percentage taxes under Sections 163, 164, and 165(a)(1)(2)(3) are paid in advance prior to release from customs custody, based on the Bureau of Customs value including customs duties and other charges (Section 162(c)).
- Upon the importer’s original sale, barter, exchange, or transfer of such imported articles, a sales tax is levied at the same rate on the gross value in money of the articles sold (Section 162(c)).
- The tax paid in advance by the importer is credited against the sales tax due on the original sale (Section 162(c)).
- The advance payment rule does not apply to articles used by the importer in the manufacture or preparation of articles subject to excise tax under Title IV (Section 162(c)).
- If the National Economic and Development Authority (NEDA) certifies 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 is subject to the tax imposed by this advance-payment framework (Section 162(c)).
Presumptions of sales and consignment timing
- Sales on consignment are treated as actually sold on the day of sale or sixty days after the date consigned, whichever is earlier (Section 162(a)(5)(i)).
- When a person fails to issue required receipts or invoices, fails to file a return, or when there is reason to believe books/records do not correctly reflect declarations in required returns, the Commissioner may prescribe a minimum amount of gross receipts/sales/taxable base based on sales/receipts/taxable base of similar businesses under similar situations or other relevant information.
- The prescribed minimum amount is prima facie correct for determining the person’s correct sales tax liabilities (Section 162(a)(5)(ii)).
Rates for specified articles and agriculture
- Essential articles covered by Section 165(A)(3) are taxed at 10% of the gross selling price or gross value in money of the following articles so sold, bartered, exchanged, or transferred (Section 165(A)(3)):
- processed meat, beverages, vegetables, milk and dairy products, fish and other sea foods;
- wheat flour;
- bread and ordinary bakery products;
- medicine;
- laundry soap and detergents;
- writing pads, notebooks and ordinary lead pencils;
- cement, hollow blocks, lumber, roofing materials, steel bars, sand and gravel;
- fish, poultry, swine and cattle feeds; and
- fertilizer.
- The sales tax on agricultural products under Section 165(A)(4) is reduced from 1% to 0% (Section 165(A)(4) as amended).
Subsequent sales tax and invoicing requirement
- On every subsequent sale, barter, exchange, or similar transaction for nominal or valuable consideration intended to transfer ownership or title to any article, there is imposed an equivalent sales tax of 1.5% of the gross selling price or gross value in money of the article sold, barred, exchanged, or transferred (Section 165(B)).
- The subsequent sales tax is paid by the seller or transferor (Section 165(B)).
- Subsequent sale of agricultural products in their original state is subject to a 0% rate (Section 165(B)), subject to Section 167.
- If the tax under this subsection is not billed to the purchaser as a separate item in the invoice, the amount intended to cover the sales tax is considered part of the gross selling price of the article (Section 165(B)).
Credits against sales tax
- Section 166(a) allows credits for certain taxes paid on raw materials and inputs used to produce finished products, except agricultural products (Section 166(a)).
- Any excise, sales, or miller’s tax paid under Title IV and Title V on domestically manufactured, processed, produced, or imported raw materials, parts, accessory, or other articles locally purchased or imported by the manufacturer for conversion into or intended to form part of any finished product for sale is credited against the sales tax due on the original sale of the finished product, except agricultural products (Section 166(a)).
- The amount of sales tax on domestically purchased raw materials, parts, or accessory must be separately indicated in the sales invoice to qualify for credit (Section 166(a)).
- In purchases from a duly registered and accredited dealer, the amount of tax passed on to the dealer as well as the tax on subsequent sale, if indicated as separate items in dealer/sales invoice, is allowed as credits against the sales tax due on the finished product (Section 166(a)).
- Any advance sales tax paid on imported articles is allowed as credits against the sales tax due on the original sale of such imported articles (Section 166(a)).
Exemptions from sales tax
- Section 167 provides exemptions from the sales tax imposed in Sections 163, 164, and 165.
- Exemptions include:
- original sale by a manufacturer, producer, or importer of articles subject to excise tax under Title IV and miller’s tax under Section 168 (Section 167(a));
- subsequent sale of manufactured oils and other fuels, except lubricating oil, processed gas, grease, wax and petrolatum (Section 167(b));
- subsequent sale of any newspaper, magazine, review, or bulletin that appears as regular intervals, has fixed subscription/sale prices, and is not principally devoted to publication of advertisements (Section 167(c));
- .22 caliber firearms and cartridges, and other ammunition sold or delivered directly to the Armed forces of the Philippines or any government instrumentality/agency engaged in maintaining peace and order for their use/issue (Section 167(d));
- articles shipped or exported by the manufacturer/producer/trader, irrespective of shipping arrangements that influence or determine transfer of ownership (Section 167(e)), with a specific tax-credit mechanism for exporter treatment:
- excise, sales, or advance sales tax paid under this Title or Title IV on domestically manufactured or imported raw materials used in manufacture and forming part of finished products subject to tax under Sections 163, 164, and 165(a)(1)(2)(3) is allowed as a tax credit against other internal revenue tax liability directly due from the manufacturer exporting those products (Section 167(e));
- the locally purchased raw material/part/accessory tax amount is credited only if indicated as a separate item in the supplier’s sales invoice and the exporter files an application for tax credit within one year from the close of the taxable year in which the export was effected (Section 167(e));
- if finished products are exported by an export trader other than the manufacturer, the entire amount of sales and excise taxes separately indicated in the immediate seller’s sales invoice is allowed to be credited against other tax liabilities of the export trader, subject to the same application requirement (Section 167(e));
- sales by registered export producers to other export producers, registered export traders, or foreign tourists/travelers as “export sales” (Section 167(f));
- sales by manufacturers, producers, or traders direct to foreign tourists and paid for in convertible foreign currency if the articles are actually brought out of the Philippines by the buyers upon departure (Section 167(g));
- exemptions that may be granted by the President upon recommendation of NEDA in the interest of economic development (Section 167(h)).
Receipts and invoices: obligation and retention
- Every person subject to an internal revenue tax must issue receipts/sales/commercial invoices for each sale or transfer of merchandise or for services rendered valued at twenty-five pesos or more, in duplicate, showing the date of transaction, quantity, unit cost, and description of merchandise or nature of service (Section 181).
- For sales/receipts/transfers in the amount of one hundred pesos or more, or regardless of amount where the sale/transfer is made by producers, manufacturers, importers, or persons subject to percentage tax on subsequent sales, receipts/invoices must be issued showing the name, business style (if any), and address of the purchaser/customer/client (Section 181).
- Where the receipt is issued to cover payment made as rentals, commissions, compensations or fees, receipts/invoices must show the name, business style (if any), and address of the purchaser/customer/client (Section 181).
- The original receipt/invoice must be issued to the purchaser/customer/client at the time the transaction is effected; the purchaser/customer/client must keep and preserve it in the place of business for three years from the invoice/receipt date if engaged in business or in the exercise of profession (Section 181).
- The duplicate must be kept and preserved by the issuer in the issuer’s place of business for a like period of three years (Section 181).
- The Commissioner of Internal Revenue may, in meritorious cases, exempt any person subject to internal revenue tax from compliance with the requirements of Section 181 (Section 181).
Local and education fund allocation
- Section 319(c) provides that five percent (5%) of the total tax collected on subsequent sale under Section 165(B) accrues to the city or municipality in which the tax is collected (Section 319(c)).
- Section 319(c) also provides that another five percent (5%) of the total annual tax collected on said subsequent sales accrues to the Ministry of Education, Culture and Sports (Section 319(c)).
Flexibility clause for tax rate adjustments
- The tax rates existing in general may be increased or decreased by not more than 50% (Section 241(2)(a)).
- For sales tax on agricultural products sold in their original state or where such agricultural products have undergone simple processes, the existing rates may be increased to not more than 3% (Section 241(2)(a)).
Administrative implementation and registration
- The Bureau of Internal Revenue must update data and information of persons liable to the sales tax on original and subsequent sale (Section 10).
- Persons liable to sales tax on original and subsequent sale who have not yet registered their businesses in accordance with P.D. 1991 must re-register in a manner and form to be prescribed by the Commissioner within a period to be prescribed after the Decree’s effectivity (Section 10).
Regulations and repeals
- The Minister of Finance must issue the necessary regulations for implementation upon recommendation of the Commissioner of Internal Revenue (Section 11).
- All laws, decrees, executive orders, regulations, and other issuances or parts thereof inconsistent with the Decree are repealed, amended, or modified accordingly (Section 12).