ReSA - THE REVIEW SCHOOL OF ACCOUNTANCY

CPA Review Batch 42  October 2021 CPA Licensure Exam  Week No. 4

TAXATION A. Tamayo  G. Caiga  C. Lim  K. Manuel  E. Buen

TAX-501: EXCISE TAXES

A. Definition of excise tax
Excise taxes apply to taxes on goods manufactured or produced in the Philippines for domestic sales or
consumption or for any other disposition and to things imported as well as services performed in the Philippine,
which tax shall be in addition to the value-added tax.

B. Concept and nature of excise taxes

1. Considered These excise taxes may be considered taxes on production as they are collected only
taxes on from the manufacturers and producers.
production
2. An indirect tax Basically excise tax is an indirect tax, excise taxes are directly levied upon the
manufacturer or importer upon removal of the taxable goods from its place of
production or from the customs custody.

These taxes, however, may be actually passed on to the end consumer as part of the
transfer value or selling price of the goods sold, bartered or exchanged.

C. Goods and services subject to excise tax

1. Goods subject Excise taxes apply to:
to excise taxes a) goods manufactured or produced in the Philippines for domestic sales or
consumption or for any other disposition,
b) things imported, as well as
c) services rendered in the Philippines

Excise taxes specifically apply to:

a) Alcohol products,
b) Tobacco products,
c) Petroleum products,
d) Miscellaneous articles such as automobiles and non-essential goods,
e) Non-essential services,
f) Sweetened beverages, and
g) Mineral products

The excise tax imposed herein shall be in addition to the value-added tax imposed.
2. Kinds of excise 'Specific tax' - an excise tax imposed and based on weight or volume capacity or any
taxes other physical unit of measurement.
'Ad valorem tax - an excise tax imposed and based on selling price or other specified
value of the good.'
3. Examples of a) Excise tax on Cigarettes Packed by Hand
specific tax b) Excise tax on Cigarettes Packed by Machine
c) Excise tax on petroleum products
d) Excise tax on mineral products
e) Excise tax on sweetened beverages
4. Examples of ad a) Excise tax on alcoholic products
valorem tax b) Excise tax on cigars
c) Excise tax on automobiles
d) Excise tax on non-essential services
5. Manner of a) Specific tax = Units x Specific tax rate
Computation of b) Ad valorem tax = Units x SP/unit x Ad valorem tax rate
Excise Tax

D. Filing of Return and Payment of Excise Tax on Domestic Products.

1. Persons Liable to File a Return, Filing of Return on Removal and Payment of Tax. -
a. Persons Every person liable to pay excise tax shall file a separate return for each place of
Liable to File production setting forth, among others:
a Return a) the description and quantity or volume of products to be removed,
b) the applicable tax base and the amount of tax due thereon.

In the case of indigenous petroleum, natural gas or liquefied natural gas, the excise tax
shall be paid by the first buyer, purchaser or transferee for local sale, barter or transfer.
Excise tax on exported products shall be paid by the owner, lessee, concessionaire or
operator of the mining claim.

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Should domestic products be removed from the place of production without the payment
of the tax, the owner or person having possession thereof shall be liable for the tax due
thereon.
b. Time for Unless otherwise specifically allowed, the return shall be filed and the excise tax paid by
Filing of the manufacturer or producer before removal of domestic products from place of
Return and production.
Payment of
Excise tax on locally manufactured petroleum products and indigenous petroleum levied
the Tax
under Sections 148 (Manufactured Oil and Other Fuels) and 151(A)(4) (Indigenous
Petroleum), respectively, shall be paid:
a) within ten (10) days from the date of removal of such products for the period
from January 1, 1998 to June 30, 1998;
b) within five (5) days from the date of removal of such products for the period from
July 1, 1998 to December 31, 1998; and,
c) before removal from the place of production of such products from January 1,
1999 and thereafter.

Excise tax on nonmetallic mineral or mineral products, or quarry resources shall be due
and payable upon removal of such products from the locality where mined or extracted.

With respect to the excise tax on locally produced or extracted metallic mineral or mineral
products, the person liable shall file a return and pay the tax within fifteen (15) days
after the end of the calendar quarter when such products were removed subject to such
conditions as may be prescribed by rules and regulations to be promulgated by the
Secretary of Finance, upon recommendation of the Commissioner.

For this purpose, the taxpayer shall file a bond in an amount which approximates the
amount of excise tax due on the removals for the said quarter.

The foregoing rules notwithstanding, for imported mineral or mineral products, whether
metallic or nonmetallic, the excise tax due thereon shall be paid before their removal
from customs custody.
c. Place of Except as the Commissioner otherwise permits, the return shall be filed with and the tax
Filing of paid to any authorized agent bank or Revenue Collection Officer, or duly authorized City
Return and or Municipal Treasurer in the Philippines.
Payment of
the Tax
d. Exceptions The Secretary of Finance, upon recommendation of the Commissioner may, by rules and
regulations, prescribe:
(a) 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
factors such as volume of removals, adequate measures of security and such other
relevant information required to be submitted under the pertinent provisions of this
Code; and
(b) The manner and time of payment of excise taxes other than as herein prescribed,
under a tax prepayment, advance deposit or similar schemes. In the case of locally
produced of extracted minerals and mineral products or quarry resources where the
mine site or place of extraction is not the same as the place of processing or
production, the return shall be filed with and the tax paid to the Revenue District
Office having jurisdiction over the locality where the same are mined, extracted or
quarried: Provided, however, That for metallic minerals processed abroad, the return
shall be filed and the tax due thereon paid to the Revenue District Office having
jurisdiction over the locality where the same are mined, extracted or quarried.

2. Determination of Gross Selling Price of Goods Subject to Ad Valorem Tax

a. Price excluding Unless otherwise provided, the price, excluding the value-added tax, at which the
VAT goods are sold at wholesale in the place of production or through their sales agents
to the public shall constitute the gross selling price
b. Manufacturer If the manufacturer also sells or allows such goods to be sold at wholesale in another
also sells or establishment of which he is the owner or in the profits of which he has an interest,
allows goods to the wholesale price in such establishment shall constitute the gross selling price.
be sold at
wholesale in
another
establishment he
owns

c. Should price be Should such price be less than the cost of manufacture plus expenses incurred until
less than the the goods are finally sold, then a proportionate margin of profit, not less than ten

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cost of percent (10%) of such manufacturing cost and expenses, shall be added to constitute
manufacture the gross selling price.

3. Manufacturer's or Producer's Sworn Statement

Every manufacturer or producer of goods or products subject to excise taxes shall file with the Commissioner
on the date or dates designated by the latter, and as often as may be required, a sworn statement showing,
among other information:
A) the different goods or products manufactured or produced and their corresponding gross selling price
or market value,
B) together with the cost of manufacture or production
C) plus expenses incurred or to be incurred until the goods or products are finally sold.

4. Credit for Excise tax on Goods Actually Exported

a. When goods When goods locally produced or manufactured are removed and actually exported
locally produced without returning to the Philippines, whether so exported in their original state or as
or ingredients or parts of any manufactured goods or products, any excise tax paid
manufactured thereon shall be credited or refunded upon submission of the proof of actual
are removed exportation and upon receipt of the corresponding foreign exchange payment.
and actually
exported
b. Excise tax on The excise tax on mineral products, except coal and coke, imposed under Section
mineral 151 shall not be creditable or refundable even if the mineral products are actually
products, exported.
except coal and
coke

E. Payment of Excise Taxes on Imported Articles

1. Person liable
a. Excise tax on Excise taxes on imported articles shall be paid by the owner or importer to the
imported Custom Officers, conformably with the regulations of the Department of Finance and
articles before the release of such articles from the customs house, or by the person who is
found in possession of articles which are exempt from excise taxes other than those
legally entitled to exemption.
b. Tax-free articles In the case of tax-free articles brought or imported into the Philippines by persons,
brought or entities, or agencies exempt from tax which are subsequently sold, transferred or
imported into exchanged in the Philippines to non-exempt persons or entitles, the purchasers or
the Philippines recipients shall be considered the importers thereof, and shall be liable for the duty
by persons, and internal revenue tax due on such importation
entities, or
agencies
exempt from
tax
c. Importation of The provision of any special or general law to the contrary notwithstanding, the
cigars and importation of cigars and cigarettes, distilled spirits, fermented liquors and wines into
cigarettes, the Philippines, even if destined for tax and duty free shops, shall be subject to all
distilled spirits, applicable taxes, duties, charges, including excise taxes due thereon.
fermented
liquors and
wines into the
Philippines
d. Non-labeling or Cigars and cigarettes, distilled spirits and wines within the premises of all duty-free
re-selling of shops which are not labeled as herein above required, as well as tax and duty-free
certain goods articles obtained from a duty free shop and subsequently found in a non duty-free
punishable shop to be offered for resale shall be confiscated, and the perpetrator of such non-
labeling or re-selling shall be punishable under the applicable provisions of this Code.
e. Destruction of Articles confiscated shall de destroyed using the most environmentally friendly
confiscated method available in accordance with the rules and regulations to be promulgated by
articles the Secretary of Finance, upon recommendation of the Commissioners of Customs
and Internal Revenue.
f. Lien on the The tax due on any such goods, products, machinery, equipment or other similar
article articles shall constitute a lien on the article itself, and such lien shall be superior to
all other charges or liens, irrespective of the possessor thereof.

2. Rate and Basis of the Excise Tax on Imported Articles

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Unless otherwise specified imported articles shall be subject to the same rates and basis of excise taxes
applicable to locally manufactured articles.

F. Mode of Computing Contents of Cask or Package

Every fractional part of a proof liter equal to or greater than a half liter in a cask or package containing more
than one liter shall be taxed as a liter, and any smaller fractional part shall be exempt but any package of
spirits, the total content of which are less than a proof liter, shall be taxed as one liter.

G. Exercises

1. On January 15, 2019, Mr. Rico Emilio Nario imported an automobile with importer’s selling price of
P4,500,000. The customs duties on importation amounted to P2,000,000. Total charges before the goods
are released from Customs custody amounted to P500,000.

Question 1 – How much is the excise tax on the importation?

Question 2 – How much is the VAT on importation?

2. On January 15, 2019, Buen Mining Corporation removed 100,000 metric tons of domestic coal and coke
from the locality where mined or extracted. How much is the excise tax, if any?

3. Manuel Wines and Liquors imported distilled spirits and presented the following data:
Net retail price (excluding the excise tax and the value-added tax) per proof P10
Total proof liter 500,000 proof liter

Question 1 – How much is the ad valorem excise tax?

Question 2 – How much is the specific excise tax?

4. To improve her body shape Paz Seksi decided to undergo procedure and sought the services of Body
Beautiful, a clinic operated outside the hospital and owned by Bello Medical Group, Inc. Body Beautiful
charged Ms. Pax Seksi the amount of P50,000 (inclusive of 12% VAT but exclusive of 5% excise tax) for
the service rendered.

Question 1 – How much is the excise tax?

Question 2 – How much is the VAT?
Question 3 - How much is the total amount to be collected from Ms. Paz Seksi?

5. Using the same data in no. 4, assuming that the amount of P50,000 is inclusive of 12% VAT and 5%
excise tax
Question 1 – How much is the excise tax?
Question 2 – How much is the VAT?
Question 3 - How much is the total amount to be collected from Ms. Paz Seksi?

6. Same facts in no. 4, except this time Ms. Paz Seksi had another invasive cosmetic procedure done by Dr.
Anne Calay, an individual practitioner operating a clinic inside of hospital whose gross annual receipts
exceed the VAT threshold. The hospital bills of Ms. Paz Seksi other fees (e.g. supplies and fees for use of
operating room and hospital facilities) in the amount of P20,000, in addition to the fees charged by Dr.
Anne Calay of P50,000 (inclusive of 12% VAT, excluding 5% excise tax) for the service performed.

Question 1 – How much is the VAT-exempt service, if any?

Question 2 – How much is the excise tax?
Question 3 – How much is the VAT?
Question 4 - How much is the total amount to be collected from Ms. Paz Seksi?

- = END = -

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Answers to Exercises

1. On January 15, 2019, Mr. Rico Emilio Nario imported an automobile with importer’s selling price of
P4,500,000. The customs duties on importation amounted to P2,000,000. Total charges before the goods
are released from Customs custody amounted to P500,000.

Question 1 – How much is the excise tax on the importation?

Question 2 – How much is the VAT on importation?

Question 1 – How much is the excise tax on the importation?

Importer’s selling price P4,500,000
Rate 50%
Excise tax P2,250,000

Question 2 – How much is the VAT on importation?

Importer’s selling price P4,500,000
Add: Excise tax 2,250,000
Customs duties 2,000,000
Total charges 500,000
Total 9,250,000
Rate 12%
VAT on importation P1,110,000

2. On January 15, 2019, Buen Mining Corporation removed 100,000 metric tons of domestic coal and coke
from the locality where mined or extracted. How much is the excise tax, if any?

No. of metric tons of coal and coke removed from mining site 100,000
Multiplied by P100
Excise tax P10,000,000

3. Manuel Wines and Liquors imported distilled spirits and presented the following data:
Net retail price (excluding the excise tax and the value-added tax) per proof P10
Total proof liter 500,000 proof liter

Question 1 – How much is the ad valorem excise tax?

Question 2 – How much is the specific excise tax?

Question 1 – How much is the ad valorem excise tax?

Net retail price (excluding the excise tax and the value-added tax) per proof P200,000
Rate 20%
Excise tax (ad valorem) P 40,000

Question 2 – How much is the specific excise tax?

Total proof liters 500,000
Multiplied P20
Excise tax (specific) P10,000,000

4. To improve her body shape Paz Seksi decided to undergo procedure and sought the services of Body
Beautiful, a clinic operated outside the hospital and owned by Bello Medical Group, Inc. Body Beautiful
charged Ms. Pax Seksi the amount of P50,000 (inclusive of 12% VAT but exclusive of 5% excise tax) for
the service rendered.

Question 1 – How much is the excise tax?

Question 2 – How much is the VAT?
Question 3 - How much is the total amount to be collected from Ms. Paz Seksi?

Question 1 – How much is the excise tax?

Gross receipts, net of VAT (50,000/1.12) P44,642.85
Tax rate 5%
Excise tax P2,232.14

Question 2 – How much is the VAT?

Gross receipts, net of VAT P44,642.85
Add: Excise tax 2,232.14
Total 46,874.99
Tax rate 12%
VAT P5,625.00

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Question 3 - How much is the total amount to be collected from Ms. Paz Seksi?
Gross receipts, net of VAT P44,642.85
Add: Excise tax 2,232.14
VAT 5,625.00

5. Using the same data in no. 4, assuming that the amount of P50,000 is inclusive of 12% VAT and 5%
excise tax
Question 1 – How much is the excise tax?
Question 2 – How much is the VAT?
Question 3 - How much is the total amount to be collected from Ms. Paz Seksi?

Question 1 – How much is the excise tax?

Gross receipts, net of VAT (50,000/1.12) P44,642.85
Gross receipts, net of excise tax (44,642.85/1.05) P42,517.01
Tax rate 5%
Excise tax P2,125.85

Question 2 – How much is the VAT?

Gross receipts, net of VAT inclusive of excise tax P44,642.85
Tax rate 12%
VAT P 5,357.14

Question 3 - How much is the total amount to be collected from Ms. Paz Seksi?
Gross receipts, net of VAT and excise tax P42,517.01
Add: Excise tax 2,125.85
VAT 5,357.14
Total P50,000.00

6. Same facts in no. 4, except this time Ms. Paz Seksi had another invasive cosmetic procedure done by Dr.
Anne Calay, an individual practitioner operating a clinic inside of hospital whose gross annual receipts
exceed the VAT threshold. The hospital bills of Ms. Paz Seksi other fees (e.g. supplies and fees for use of
operating room and hospital facilities) in the amount of P20,000, in addition to the fees charged by Dr.
Anne Calay of P50,000 (inclusive of 12% VAT, excluding 5% excise tax) for the service performed.

Question 1 – How much is the VAT-exempt service, if any?

Question 2 – How much is the excise tax?
Question 3 – How much is the VAT?
Question 4 - How much is the total amount to be collected from Ms. Paz Seksi?

Question 1 – How much is the VAT-exempt service, if any?

Hospital bills of Ms. Paz Seksi for other fees (hospital services) P20,000.00

Question 2 – How much is the excise tax?

Excise tax hospital bills (20,000 x 5%) P1,000.00
Excise tax on doctor’s fees (50,000/1.12 = 44,642.85 x 5%) 2,232.14
Total P3,232.14

Question 3 – How much is the VAT?

Doctor’s fees, net of VAT P44,642.85
Add: Excise tax 2,232.14
Total 46,874.99
Tax rate 12%
VAT P 5,625.00

Question 4 - How much is the total amount to be collected from Ms. Paz Seksi?
Billings by hospital (VAT-exempt) P20,000.00
Excise tax on hospital billings (20,000 x 5%) 1,000.00
Doctor’s fees, net of VAT 44,642.85
Excise tax on doctor’s fees 2,232.14
VAT 5,625.00
Total P73,500.00

END

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