Excise tax rules on minerals and mineral products

Legal basis and tax framework

Section 1 provides that the regulations are promulgated pursuant to Section 245 of the National Internal Revenue Code (NIRC), as amended.
Section 1 also implements the provisions of Section 151, Chapter VII, Title VI of the NIRC as amended by Executive Order No. 273.
Section 1 further reflects amendments introduced by Republic Act No. 7729, which imposes excise tax on minerals and mineral products.

Policy, purpose, and coverage statement

The regulation establishes rules governing the imposition, computation, and collection of excise tax on minerals and mineral products (including quarry resources and related removals).
The coverage provisions identify minerals and mineral products through both enumerations and definitions tied to extraction, processing, and removal.

Definitions and key concepts

“Minerals” are defined as all naturally occurring inorganic substances found in solid, liquid, gaseous, or any intermediate state (Section 3(a)).
“Mineral products” mean things produced and prepared in a marketable state by simple treatment processes such as washing or drying, but without undergoing any chemical change or process or manufacturing by the lessee, concessionaire or owner of mineral lands (Section 3(b)).
“Mineral lands” are lands where minerals exist in sufficient quantity and grade to justify necessary expenditures for extracting and utilizing such minerals (Section 3(c)).
“Mineral concentrates” are products obtained by concentrating disseminated or lean ores by mechanical means without altering their original chemical composition to separate undesirable minerals and/or other constituents (Section 3(d)).
“Lessee” includes a leaseholder, claim owner or operator, quarry licensee or permittee (Section 3(e)).
“Quarry resources” are common stone or common mineral substances declared by the Director of the Bureau of Mines and Geo-Sciences, including specific examples (e.g., marl, marble, granite, volcanic cinders, basalt, tuff, rock phosphate, andesite, conglomerate, coral, sand, diatomaceous earth, diorite, decorative stones, gabbro, limestone, red burning clays for pottery and bricks, rhyolite, sandstone, serpentine, shale, volcanic glass) provided they contain no metal or metals or other valuable minerals in economically workable quantities, and they include sand and gravel whether removed from river beds or quarried (Section 3(f)).
“Gross Output” is the actual market value of minerals or mineral products, or of bullion from each mine or mineral lands operated as a separate entity, without any deduction from mining, milling, refining (including expenses incurred to prepare for marketable state) and also without deductions for transporting, handling, marketing, or other expenses—except as provided in Section 5(B) (Section 3(g)).
“Indigenous petroleum” includes locally extracted mineral oil, hydrocarbon gas, bitumen, crude asphalt, mineral gas, and similar naturally associated substances except coal, peat, bituminous shale and/or stratified mineral deposits (Section 3(h)).
“Integrated operations” refers to an establishment engaged in manufacture of products (e.g., cement, ceramics, glass products/wares, bottles, concrete products, iron or steel or any product using minerals or quarry resources as raw materials) that simultaneously own, lease or operate the quarry/mine (Section 3(i)).
“Quarry cost” includes all costs and expenses involved in the extraction of the minerals (Section 3(j)).
“Cost of Goods Sold” means the cost of production of finished goods sold in a given period (Section 3(k)).
“Average selling price” means an average price based on the number of fluctuations during a given period (Section 3(l)).

What goods are covered as minerals

Section 2 provides that the goods listed (including but not limited to examples) are considered minerals and mineral products for purposes of these regulations.
Metals under Section 2 include ferrous (e.g., iron, ferroalloying such as manganese ore and metallurgical/chemical/refractory chromite, molybdenum), non-ferrous (e.g., copper, tin, mercury; aluminum, magnesium, titanium; gold, silver, platinum), and rare minerals (e.g., uranium, radium, beryllium) (Section 2, I).
Non-metals include mineral fuels: indigenous petroleum (liquid and gaseous) and hard/soft/compressed coal such as anthracite, semi-anthracite, and coke (Section 2, II(A)).
Non-metals and quarry resources include extensive mineral and quarried materials such as sand and gravel, stone, cement materials, gypsum, sulfur, salt, marble, limestone, coral, shale, slate, quartzite, schist, volcanic cinder, perlite, tuff, granite basalt, andesiate, gabbro, conglomerate, phosphate rock, potash, nitrates, guano, pyrite, silica, feldspar, talc, fire clay, clay and varieties of clay, sandstone, corundum, industrial diamonds, pumice, emery, magnesia, asbestos, mica, ocher, clay, diatomite, barite, bentonite, fuller's earth, sandstone, and more (Section 2, II(B)).
Precious and semi-precious stones in raw form are also included, such as gem diamond, amethyst, amber, emerald, ruby, garnet, opal, agate, jade, and geode (Section 2).

Who must pay and liability for removal

Section 4 makes all lessees, concessionaires, owners or operators of mines, processors of minerals, licensees or permittees of quarry/mines, and producers or manufacturers of mineral products liable for the excise tax due on minerals, mineral products, and quarry resources removed from the minesite and/or place of production.
Section 4 provides that if minerals, mineral products, or quarry resources are removed without payment of the tax, the owner or person having possession of the goods is liable for the excise tax due.

Excise tax rates and computation base

Section 5(A) imposes excise tax on mineral, mineral products, and quarry resources at the following rates and bases:
Coal and coke: PHP 10.00 per metric ton (Section 5(A)(1)).
Non-metallic minerals and quarry resources (locally extracted/produced): 2% based on actual market value of the annual gross output at the time of removal (Section 5(A)(2)).
Non-metallic minerals and quarry resources (imported): 2% based on the value used by the Bureau of Customs to determine tariff and customs duties, net of excise tax and value-added tax (Section 5(A)(2)).
Metallic minerals: tax is based on actual market value of the gross output at removal for local extraction, or Bureau of Customs value for imports, net of excise tax and value-added tax, and applied under the following schedule:
- Copper and other metallic minerals:
  - For the first three (3) years upon the effectivity of R.A. 7729: 1%
  - For the fourth and the fifth year: 1 1/2%
  - For the sixth year and thereafter: 2% (Section 5(A)(3)(i)-(iii)).
- Gold and chromite: 2% (Section 5(A)(3), last sentence).
Indigenous petroleum: 15% of the fair international market price, on the first taxable sale, with payment by the buyer or purchaser within 15 days from actual or constructive delivery (Section 5(A)(4)).
Section 5(A)(4) defines the “first taxable sale, barter, exchange or similar transaction” as the transfer of indigenous petroleum in its original state to a first taxable transferee.
Section 5(A)(4) requires that the fair international market price be determined in consultation with an appropriate government agency.

Allowable valuation rules and special methods

Section 5(B)(1) establishes that excise tax is generally based on the actual market value at the time of removal from where mined or where produced, without deduction for mining, milling, refining, and other expenses to prepare goods in marketable state, and without deduction for transporting, handling, marketing, or other expenses—except in the enumerated cases.
Ocean freight and insurance deduction (C.I.F. export): if minerals or mineral products are sold or consigned abroad under C.I.F. terms, the actual cost of ocean freight and insurance is allowed as deductions from actual market value of minerals shipped (Section 5(B)(1)).
Non-commodity-exchange mineral concentrates: for mineral concentrates not traded in commodity exchanges in the Philippines or abroad (e.g., copper concentrate), actual market value is the world price quotations of the refined mineral products content prevailing in those commodity exchanges after deducting smelting, refining and other changes incurred converting the concentrates into refined metal traded in the commodity exchanges; these deductions are in addition to the C.I.F. ocean freight/insurance deductions if applicable (Section 5(B)(1)).
Mineral concentrates when exported with undeterminable value: if actual market value is not determinable at export date, the basis is the amount in the provisional invoice issued by the exporter; actual market value must be determined within 90 days from actual exportation; if not determinable within the prescribed period, the Regional Director may grant an extension in meritorious cases upon request (Section 5(B)(2)).
Integrated operations raw material removals: if removals are not intended for sale but are used as raw materials, actual market value is computed using:
- Actual Market = Quarry Cost per unit × Ave. Selling Price of the manufactured/finished product per unit ÷ Cost of Goods Sold per unit (Section 5(B)(3)).
Section 5(B)(3) provides an illustrative example for cement using lime extracted from its own quarry to show computation and application of excise tax using 2% as the rate example.

Export documentation and removal requirements

Every shipment intended for export must be covered by a permit secured from the Revenue District Officer (RDO) having jurisdiction over the minesite or place of production (Section 5(B)(4)).
The permit application must state:
- the kind and quantity of goods to be exported;
- the destination and consignee;
- the name and voyage number of the loading vessel; and
- attach a certified true copy of the provisional invoice for exportation of mineral concentrates (Section 5(B)(4)).
If deemed necessary, an exporter’s bond may be filed before removal for shipment, in the form and amount the Commissioner requires, conditioned on payment of excise tax due on mineral concentrates upon final determination of actual market value of refined mineral product content (Section 5(B)(4)).
Proof of exportation must be submitted to the concerned RDO within 30 days from the date of actual exportation (Section 5(B)(4)).

When and how excise tax is paid

Section 5(C)(a) provides that excise tax is due and payable upon removal of minerals/mineral products/quarry resources from the locality where mined, or upon removal from customs custody for imported goods—unless otherwise provided.
For locally produced or extracted minerals/mineral products/quarry resources, before removal, the liable person must:
- file in triplicate a return using BIR Form No. 2223 stating quantity and actual market value; and
- pay the excise taxes due to an accredited bank in the city or municipality of the mine’s location.
If there is no accredited bank, the return is filed with the Collection Officer, or the duly authorized Treasurer of the Municipality where the mine is located (Section 5(C)(a)(1)).
For quarterly removal without prepayment, the lessee/owner/operator must file a bond conforming to Section 151(c) of the NIRC, as amended, in the form and amount and with sureties required by the Commissioner, conditioned on payment of excise taxes (Section 5(C)(a)(2)).
Under quarterly basis, the lessee/owner/operator must:
- make a true and complete return (BIR Form No. 2223) in triplicate for the calendar quarter’s removals, including the balance in cases where payments are made upon removal; and
- pay the excise taxes due within 20 days after the end of such quarter to an accredited bank in the city or municipality where the mine is located.
If there is no accredited bank, returns are filed with the Collection Officer or the duly authorized Treasurer of the Municipality where the mine is located (Section 5(C)(a)(2)).
For imported minerals/mineral products/quarry resources, excise tax must be paid before release from customs custody (Section 5(D)).
The owner/importer must apply in writing for an authority to release imported goods (ATRIG) with the RDO having jurisdiction over the importer’s principal place of business (Section 5(D)).
If the importer is engaged in production/manufacture, the application must be filed with the RDO under whose jurisdiction the applicant’s manufacturing/production plant is located, submitting copies of:
- consular invoice;
- commercial invoice;
- bill of lading;
- packing list;
- Import Entry and Internal Revenue Declaration (Section 5(D)).
Proof of payment of excise tax must be delivered to the Revenue Officer designated to verify release of the imported goods (Section 5(D)).

Permission to engage in mining-related business

Section 6(a) requires that any person or entity desiring to engage in exploring, developing, exploiting and disposing minerals or mineral products and quarry resources on mineral lands must first apply to the Regional Director under whose region the activities are to be conducted.
The application must state at least:
- the name of the applicant;
- business name; and
- the principal office or place of business (Section 6(a)).
The application must attach:
- a location sketch and blueprint of the plat and plan of the mining site/place of production;
- approval of the license to engage by the Bureau of Mines and Geo-Sciences;
- a Certificate of Registration with Bureau of Trade;
- a duplicate or certified true copy of the applicant’s latest income tax return;
- if a corporation or partnership: certified true copies of the Articles of Incorporation and By-laws or Co-Partnership registered and approved by the Securities and Exchange Commission; and
- a Manufacturer’s or Producer’s Bond conformably with Section 160 of the NIRC, as amended, in an amount equal to about twenty per centum (20%) of the taxes payable during an average year, conditioned upon faithful compliance and guaranteeing satisfaction of all fines and penalties, with limits: not exceeding Five hundred thousand pesos (P500,000) and not received in a sum less than Ten thousand pesos (P10,000) (Section 6(a)(6)).

Official Register Book and recordkeeping

Section 7(A) requires every lessee, concessionaire, owner or operator of mines or quarry, processor of minerals, producer or manufacturer of mineral products to keep and maintain an Official Register Book (O.R.B.) and other forms or records required by the Commissioner.
Section 7(A) requires day-to-day (or on transaction dates) entries into the O.R.B. (using BIR Form No. 2222):
- debit side entries include the date, kind and quantity of minerals/mineral products/quarry resources extracted or produced; and
- credit side entries include the date, kind and quantity removed, actual market value, and the excise tax paid.
Section 7(A) provides that the O.R.B. is delivered and installed by an authorized Revenue Officer, who must enter on the fly leaf the date of delivery and name of the taxpayer and attest that legal/regulatory provisions and penalties were explained and understood.
Section 7(A) requires that the original certificate be forwarded to the Regional Director through the Revenue District Officer, while another copy is permanently affixed in the O.R.B.
Section 7(A) requires all pertinent records to be kept at the establishment or office where the mine or quarry resources is located, and made available for inspection/examination during reasonable business day hours to authorized Revenue Officer(s).

Monthly transcripts and continuity of books

Section 7(B) requires that within the first 10 days of each month, a true and exact copy of all O.R.B. entries on both debit and credit sides for the preceding month be submitted to the concerned RDO, including entries made by authorized Revenue Officer(s).
Section 7(B) requires monthly transcript submission even if activities and transactions are temporarily suspended.
The proprietor or duly authorized representative must certify at the foot of the transcript that entries are true, correct, and exact copies (Section 7(B)).
Section 7(C) provides that when all pages in an O.R.B. are filled, the proprietor must secure a new O.R.B. from the RDO, and the balance in the completed O.R.B. is carried forward to the new one together with delinquency and stocktaking records in the old O.R.B.

Preservation of records and statutory retention

Section 7(D) requires preserving O.R.B. and other records for the period prescribed in Section 235 of the Tax Code, as amended.
Upon demand, taxpayers must deliver or transmit preserved records to any authorized Revenue Officer.

Annual sworn statement obligations

Section 8 requires every lessee, concessionaire, owner or operator of mines or quarry, processor of minerals, producer or manufacturer of mineral products to file with the concerned RDO:
- on or before the last working day of January of each year, and
- every six months thereafter, or as often as required,
The sworn statement must show the kind, quantity, and actual market value of minerals and mineral products extracted or produced, and the cost of production and expenses incurred or to be incurred until final sale.
Section 8 requires a duplicate copy of the inventory of minerals and mineral products extracted or produced furnished for internal revenue purposes (pursuant to Section 13 of RR No. V-1 (Bookkeeping Regulations)) to be furnished to the RDO on or before January 31 following each calendar year.

Stocktaking and investigation authority

Section 9 authorizes the Commissioner or duly authorized representative to cause an inventory of all stocks of minerals or mineral products on hand at least once a year, at any time he may direct.
A representative of the lessee/owner/operator must be present to verify inventory figures.
Revenue Officers conducting inventory must immediately take up differences by debiting or crediting any excess or shortage in the O.R.B. and must submit a full report to the Commissioner with recommendations.

Supervision by assigned Revenue Officers

Section 10 authorizes the Commissioner or duly authorized representative to assign Revenue Officers as necessary at the mine site or place of production for internal revenue supervision, and at the Bureau of Customs to check excise tax payments and verify release of imported goods.
Taxpayers must provide suitable office space and equipment for assigned Revenue Officers at the mine/quarry/manufacturing site.
If overtime service is required, taxpayers must provide adequate lodging facilities.

Penalties for regulatory violations

Section 11 provides that violations of these regulations are subject to the pertinent penalties under Title X of the National Internal Revenue Code, as amended.

Repeal of inconsistent rules

Section 12 repeals, amends, or modifies any regulations, rulings, administrative orders, general circulars, or parts thereof, that are contrary or inconsistent with these regulations.

Implementing and transitory effect rules

Section 13 establishes that the regulations take effect 15 days after publication in a newspaper of general circulation in the Philippines.