Legal basis and incorporated concepts
- Sections 244 and 245 of the National Internal Revenue Code of 1997 provide authority for the promulgation of the Regulations.
- The Regulations are connected to the excise taxation framework under Sections 141 to 145 of the National Internal Revenue Code of 1997.
- The amended provisions operate by classifying new brands and variants based on their current net retail price.
- Any deficiency in specific tax due is assessed and collected, inclusive of increments, as provided for by the National Internal Revenue Code of 1997.
Coverage: what the amended rules govern
- The Regulations amend Section 4 of Revenue Regulations No. 1-97 to govern the excise taxation of cigars and cigarettes in determining the tax classification of new brands and variants.
- The Regulations amend Section 4 of Revenue Regulations No. 2-97 to govern the excise taxation of distilled spirits, wines and fermented liquors in determining the tax classification of new brands and variants.
- The classification system distinguishes between Existing Brand, New Brand, Variants of Existing Brand, and Variants of New Brand, but the detailed operative procedures apply to New Brand and Variants of New Brand.
Tax classification using current net retail price
- A New Brand must be classified according to its current net retail price.
- If the current net retail price has not yet been established, the taxpayer’s suggested net retail price determines the specific tax classification.
- After the current net retail price is established, it becomes the basis for determining the specific tax classification.
- The current net retail price must be determined using a survey or other alternative activity conducted in either:
- 20 major supermarkets or retail outlets in Metro Manila for brands marketed nationally, or
- 5 major supermarkets or retail outlets in the region for brands marketed only outside Metro Manila,
- at which the product is sold on retail.
- The survey or alternative activity to determine actual net retail price must be conducted three (3) months after the initial removal of the new brand from the market.
- The actual net retail price used for classification is excluding the excise tax and value added tax.
- If the current net retail price as approved is higher than the suggested net retail price, the approved current net retail price prevails; otherwise, the suggested net retail price prevails.
- Any deficiency in specific tax due resulting from the application of the approved current net retail price is assessed and collected inclusive of increments, as provided by the National Internal Revenue Code of 1997.
How the current net retail price is established
- The current net retail price of new brands may be established through any or a combination of the following methods:
- (a) Survey conducted by revenue officers of the Large Taxpayers Service and/or Regional Offices (or any equivalent BIR office with jurisdiction over excise taxpayers).
- (b) Price list submitted and duly authenticated by the store owner or operator of the supermarkets/retail outlets carrying the items/products.
- (c) Information submitted by an informer, duly authenticated and validated by the store owner/operator of the supermarket/retail outlet that issued the source-document.
- (d) Direct purchase from the supermarket/retail outlet with a valid receipt/invoice issued showing product description and retail price.
- (e) Photographs showing the item on the shelf and the corresponding price, with a camera having built-in day-date features to indicate the exact date and time when taken.
- For establishing or updating the tax classification, the Regulations require a structured process for the survey/activities to be initiated and conducted through BIR missions and internal consolidation and approvals:
- The Office in charge of registration of new brands must submit to the Commissioner of Internal Revenue (Commissioner) within five (5) days immediately after the lapse of the third month following introduction of the new brand and/or variants a list of brands whose current net retail prices must be determined.
- The Commissioner issues Mission Orders directing the conduct of the specified activities by authorized representatives of the registration office and by Regional Offices where major supermarkets or retail outlets are physically located.
- The results are submitted to the Assistant Commissioner, Large Taxpayers Service (or any equivalent office with jurisdiction over excise taxpayers) for consolidation.
- A list of surveyed products containing retail prices and tax classification is submitted for approval by the Commissioner and the Secretary of Finance.
- After approval, notification of the survey result and the official current net retail price of the surveyed product is sent to the concerned taxpayer.
Timing, periodic review, and stability of classification
- The current net retail price of new brands must be reviewed periodically through survey or appropriate activity every two (2) years, unless earlier ordered by the Commissioner.
- Notwithstanding any increase in the current net retail price, the tax classification of new brands remains in force until it is altered or changed through the issuance of an appropriate Revenue Regulations.
Rules for variants of new brands
- A variant of a new brand must be classified according to its current net retail price determined in the same manner used for a new brand.
- The tax classification of a variant of a new brand must not be lower than:
- the tax classification of the highest tax classification of the new brand, and
- any existing variant thereof.
Transitory and repealing provisions
- For all brands duly registered and introduced in the market beginning January 1, 1997, whose current net retail price was not determined for the last two (2) years from the effectivity of the Regulations, determination or re-determination of the current net retail prices must be conducted immediately upon the effectivity of the Regulations.
- All regulations, rulings, orders, or portions inconsistent with the Regulations are revoked and/or modified accordingly.
Implementing effect
- The adoption date of 17 Feb. 2003 reflects the action of the Secretary of Finance in issuing the Regulations.
- The Regulations follow a process that includes issuance of Mission Orders, consolidation by the Large Taxpayers Service (or equivalent office), approval by the Commissioner and the Secretary of Finance, and notice to the concerned taxpayer after approval.