Chapter 11 - Excise Tax

CHAPTER 11
EXCISE TAX

Chapter Overview and Obiectives

After this chapter, readers are expected to comprehend:

1. The concept and nature of excise tax on certain goods and services
2. The differences of excise tax and the other common business taxes
3. The common bases of excise tax on goods imported, produced or sold
4. The list ofcertain goods or services subject to excise tax
5. The specific rule
EXCISE TAX
Excise tax is a hybrid consumption tax with a regulatory overture. It is
imposed only on certain goods or services.

As a consumption tax, it normally applies when the goods are intended for
domestic consumption. Hence, it taxes goods domestically produced or
imported for domestic use and exempts goods produced for export.

Ifthe goods are exported out ofthe country, the manufacturer or producer of
the goods subjected to excise tax may claim tax credit or tax refund for the
excise tax paid.

In certain cases, however, the regulatory feature of excise tax is so intense

that it disregards its consumption tax nature by taxing even exports. As a
matter of national interest or public policy, the transshipment of sin product
such as alcohol or cigarettes into designated ecozones and the export of
Iocally extracted mineral products is subject to excise tax even if they are for
foreign consumption.

Excise taxes are generally levied at the point of production or importation.

The tax is collected before the goods are removed at the point of production
or before the removal of the goods from Customs. Exceptionally, cosmetic
surgery and mineral products are subject to excise tax at the point ofsale.

Scope ofExcise Tax

The Philippine version of excise tax is limited only to certain goods with the
exception of cosmetic surgery - the only service currently subject to excise
tax. In other countries, even vices such as gambling or morally damaging
activities such as prostitution are taxed.

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Chapter 1l- - Excise Tax

List of Excisable Articles and Services in the Philippines

t. Alcohol products, such as distilled spirits, wines and fermented liquors
2. Tobacco products, such as cigars and cigarettes
3. Petroleum products, such as gas, gasoline, diesel, wax, lubricant oils and
greases, kerosene, naphtha, denatured alcohol, coke, asphalt and bunker
fuel oil
4. Nlineral products whether as metallic or non-metallic minerals and
quarry resources
5. Miscellaneous articles, such as automobiles, non-essential goods like
jewelry perfume and yacht, and sweetened beverages like soft drinks
and sweetened drinks
6. Non-essential services such as cosmetic surgery
ofExcise Taxation
-Iardfi St'irirf dt d[,
ilb et
orsGrvlte Imnort Brffiction .8de
Alcohol products Yes Yes
Tobacco oroducts Yes Yes
Petroleum Droducts Yes Yes
Mineral products Yes Yes
Automobiles Yes Yes
Non-essential soods Yes Yes
Sweetened beverases Yes Yes
Non-essential services Yes

Note to readers
The excise tax covered in these chapter should be differentiated with the
excise tax imposed on privilege. The excise tax in this chapter are the excise
taxes imposed on certain goods and services.

NATURE OF PHILIPPINE EXCISE TAX

A. Excise Tax as a regulatory tax

7. Environmental tax -lt is imposed on products which causes harm to
the environment when produced or extracted or used. It is also
known as green tax.

Examples are excise tax levied on:

a. Petroleum products
b. Quarryresources
c. Minerals products

Environmental tax may also be referred to as green tax.

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Chapter 1L - Excise Tax

2. Sumpfitary tox -it is imposed to restrain luxury or extravagance. It

is also referred to as vani$t tax.

Examples are excise tax levied on:

a. Intrusive cosmetic surgery
b. Automobiles and yacht
c. fewelry
3. Sin tax - it is imposed on the consumption of sin products or those
known to pose health risk. It is also known as health tax.
Examples are excise tax levied on:
a. Alcoholic beverages
b. Tobacco products such as cigar and cigarettes
The excise taxes may be imposed on purely punitive grounds or to raise
funds to alleviate the damage caused on society by the consumption of
the undesirable products.

B. Excise tax as an indirect tax

Excise tax is an indirect tax. It is levied upon producers or importers
with the understanding that he will pass-on the same to the consumers.

C. Excise tax as a consumption tax

The excise tax is usually levied at the point of production or importation,
except excise tax on minerals and cosmetic surgery which is levied at the
point of sale. Thus, it is a typical pre-consumption tax, compared to other
business taxes which are levied at the point of sale or consumption.

D. Excise tax as an additional business tax

A business normally pays either percentage tax or value added tax.
However, if it produces or imports excisable goods or sells excisable
services, the excise tax is imposed in additional tax to the usual business
tax.

Thus, a business importing or producing excisable goods or selling

excisable services shall be taxed as follows:
Business resistration Tax to pav
VAT taxpaver VAT and excise tax
Non-VAT taxDaver Percentage tax and excise tax

E. Excise tax as specific and ad valorem tax

Excise taxes imposed in the Philippines are primarily specific taxes but
there are also ad valorem imposition and mixed of them.

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Differences between excise tax and the other business tax

1. With only few exceptions, excise tax is an indirect tax levied at the point
of production or importation while other business taxes are levied only
at the point of sale.
2. Excise tax is typically a specific or per unit tax while business tax is
purely ad valorem tax.
3. Excise tax covers the production or import or sale of narrower range of
products or services while business taxes covers the sale of almost all
products and services including those already subjected to excise tax.
4. Excise tax imposes heavier tax rates compared to reasonable business
taxes which are fairly reasonable.
5. Excise tax may subject even non-business producers while business tax
covers only those engaged in business.
6. Excise tax is a revenue tax with a regulatory overture as it intends to curb
health risks, or social, moral, or environmental wrongs while business
tax is purely levied to raise revenue.

Similarities of excise tax and the other business tax

L. Excise tax is generally a consumption tax similar to other business taxes.
Thus, the export of the goods is both exempted from excise or business
tax. Exceptionally, export of minerals is subject to excise tax.
2. Excise tax which are imposed ad valorem are similar to business taxes
which are also imposed based on selling price.
3. Excise tax and business tax are both classified as indirect taxes since it is
normally passed on by sellers to consumers.

TYPES OF EXCISE TAX

7. Specific tax - excise tax imposed based on weight or volume capacity or
any other physical unit of measurement
2. Ad valorem tax - excise tax imposed on selling price and other specified
value

Specific sin taxes are now indexed to inflation at a rate of 4o/o per annum to
preserve the regulatory potency of the tax from the gradual decline in
purchasing power of money over time.

BASIS OF AD VALOR"EM TAX

Locallyproduced goods
Locally produced goods imposed with ad valorem tax is subject to tax on
gross selling price.

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Chapter 1l- - Excise Tax

Gross selling price means the price, excluding VAT, at which the goods are
sold at wholesale in the place of production or through their sales agent to
the public shall constitute the gross selling price.

If the manufacturer also sells or allows such goods to be sold at wholesale in

another establishment of which he is the owner or in the profits of which he
'has an interest, the wholesale price in such establishment shall constitute the
selling price.

Should such price be less than the cost of manufacture plus expenses incurred
until the goods are finally sold, then a proportionate margin of profit, not less
than 10%o of such manufacturing costs and expenses, shall be added to
constitute the gross selling price. [Sec. L30(8), NIRC)

Manufacturerrs or producer's sworn statement is required

Manufacturer's or producer's shall file with CIR a statement showing the
different products or goods manufactured or produced and their
corresponding selling price or market value, together with the cost of
manufacture or production plus expenses incurred or to be incurred until the
goods are finally sold.

Illustration 1
ABC Company produced 1,000 units of an excisable goods that has a total
wholesale value of P1,120,000, inclusive of VAT. If sold retail, the goods would
earn PL,400,000. The goods are subject to a20o/o ad valorem tax.

The excise tax shall be computed as follows:

Wholesale invoice price P 1,120,000

Divide by: 7LZo/o
Wholesale price P 1,000,000
Multiply by: 20o/o
Excise tax P 200.000

Illustration 2
DEF Company produced 5,000 units of an excisable goods. The goods are
delivered to consignees who sell the goods at PL,000 a unit to customers. The
consignees take 20o/o of the retail sales and t6o/o of wholesales. Consignees are
allowed to sell the units at P900 a unit at a minimum wholesale value of l-00 units.
The excisable goods are subject to atSo/o ad valorem tax.

The excise tax shall be computed as:

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Chapter 1L - Excise Tax

Wholesale invoice price (P900 x 5,000) P 4,500,000

Divide by: L120/o
Wholesale price P 4,0L7,857
Multiply by: L,o/o
Excise tax P 602.679

Illustration 3
A manufacturer of excisable goods, subject to 20o/o excise tax, made the following
declaration in filing its excise tax return for goods produced:

Wholesale invoice price P 8,500,000

Production cost 7,500,000
Cost to sell 1,500,000

The excise tax shall be computed as follows:

Production costs P 7,500,000

Cost to sell 1.500.000
Total costs P 9,000,000
Minimum marsin (70o/ox P9,000,001 900.000
Tax base P 9,900,000
Multiply by: 20o/o
Excise tax P_I9B0J0O

The tax is based on the total cost since it is higher than the wholesale price.

Imported goods
Unless otherwise specified by law, imported goods imposed with ad valorem
tax shall be subject to the same rates and basis of excise taxes applicable to
locally manufactured articles. (Sec. 131(B), NIRC)

Illustration
Clark Enterprise imported excisable goods subject to L0% excise tax and.20o/o
customs duties. Data relating to the imported articles were as follows:

Purchase price P 4,000,000

Other inland costs 1,000,000
Domestic wholesale price, net of VAT 9,000,000

The excise tax shall be computed as:

Wholesale price P 9,000,000

Multiply by: L0o/o
Excise tax P____900-000

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Chapter 11 * Excise Tax

The customs duties shall be computed as:

Purchase price P 4,000,000

Other inland costs 1,000,000
Excise tax 900.000
Transaction value P 5,900,000
Multiply by: 20o/o
Excise tax P_iL180.000

The VAT on importation shall be computed as follows:

Purchase price P 4,000,000

Other inland costs l-,000,000
Customs duties 1,180,000
Excise tax 900.000
Landed costs P 7,080,0000
Multiply by: Excise tax rate \20/o
VAT on importation P__&!9,600

Note to readers:
You have to note the specific unit bases of specific excise taxes but for CPA
Examination purposes, they are not required to be memorized as the rates will
be given when tested.

TAX COMPLIANCE REQUIREMENTS

WHO ARE THE PERSONS LIABTE TO EXCISE TAX?

For domesticallv nroduced excisable article

General rule: Producer
Excise tax is paid by manufacturers or producers of excisable goods o
services in the Philippines for domestic sale or consumption, and importer
of excisable goods.

Exception rule:
1. The excise tax on indigenous petroleum, natural gas or liquefiet
natural gas is payable by the following person:

The
For local sale The first buver or
For export sale The owner, lessee, concessionaire or operator of the
mining claim

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2. Removal without payment

If goods are removed in their place of production without payment of the
excise tax, the owner or person having possession thereof shall be liable
to the tax. (Sec. 131(4), NIRC)

For imported excisable article

General rule: The importer

The excise tax shall be paid by the owner-importer of the imported goods.

Exception rule: The non-exempt buyer

When good are exempted by an exempt person is subsequently sold to
another non-exempt buyer, the latter shall pay for the excise tax otherwise
due thereon on the importation.

WHEN TO FILE AND PAY EXCISE TAX?

Domestically produced excisable products

General rule: Before removal

The excise tax is payable before removal of the domestic goods from the place
of production. (Sec. 130(A)(2), NIRC)

Exception rule: Mineral or mineral products

The excise tax on Iocally produced or extracted mineral or mineral products
is payable within 15 days after the end of the calendar quarter when such
products were removed.

The taxpayer shall file a bond in an amount which approximates the amount
of excise tax on the removal for the said quarter.

Imported excisable products

The excise tax on imported excisable products shall be paid before their
removal from customs custody. This rule applies even for imported metallic
or non-metallic mineral products.

Note the following general rules:

For exsisable products thdt ls
Domesflcallv oroduced ImoortAd
Who is the taxoaver?
General rule Producer Imoorter
Whento pay?
General rule Before removal from Before removal from
nroduction Customs

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EXCISE TAX-FREE IMPORTATION tsYEXEMPT PERSONS

The importation of products into tax and duty-hee shops, Freeportzones, and
special economic zones shall not be subject to excise taxes since they are
considered foreign territories. Consumption of persons inside these places
are considered foreign consumption; hence, exempt

Exception:
Exemption does not apply to sin products such as cigars, cigarettes, distilled
spirits, fermented liquors and wines. A surety bond, however, may be
required in some cases to protect the interest of the government.

Infoduction of tax-free articles into the customs territory

Introduction into the customs territory refers to the sale or iransfer of tax-
free articles to persons outside tax and duty-free shops, Freeport zones and
special economic zones.

when tax-free articles are subsequently introduced into the customs

territory, this is a technical importation subject to excise tax.
Illustration
Pivot Industries, an ecozone locator, imported and subsequently sold the
following excisable goods:

of
Value Portion sold within Portion sold
import the ecozone autside the ecozone
Cigarrettes P 400,
Wines 500,000 200,000 100,000
Automobiles 12,000,000 3,000,000 4,000,000

Importation
The importation inside special economic zone is normally exempt except sin
products; hence, the import of P400,000 cigarettes and p500,000 wines shall be
subject to excise tax.

The importation of the au'omobiles shail be exempt from excise tax if exclusively
used within ecozones. (Sec. 149, NIRC)

Subsequent sale
The subsequent sale of the cigarrettes and wines either within or outside of the
ecozone shall be exempt from excise tax as the tax is already paid at the point of
importation.

The subsequent sale of the p3,000,000 automobile within the ecozone is exempt
as this is a foreign consumption but the sale of the p4,000,000 automobile
outside
the ecozone is an introduction to the custom's territory subject to excise tax.

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Chapter 1l- - Excise Tax

The sin tax is a punitive tax hence it applies in disregard of the legal fiction that
duty-free ports, ecozones or Freeport zones are foreign countries. The legal
fiction holds only for purposes of VAT and customs duties. Import of sin products
would be exempt from VAT and customs duties.

EXPORT OF EXCISABLE GOODS

When goods locally produced or manufactured are removed and actually
exported without returning to the Philippines, any excise tax paid thereon
may be claimed as:
a. Tax refund, or
b. Tax credit
This applies whether the goods are exported in their original state or as
ingredients or parts of any manufactured goods or products. Note that the
tax is levied only on domestic consumption. (Sec' 130(D)' NIRC)
"riir"
Exception: Mineral pro ducts
The excise tax on mineral products, except coal and coke, shall not be
creditable or refundable even if the mineral products are actually exported.

Excise tax on minerals is apparently imposed to compensate the

environmental destruction arising from their or extraction or production, as
such the excise tax applies even if the goods are for foreign consumption.

EXCISE TAX ON ATCOHOL PRODUCTS

Alcohal Droducts Excise iax,iate3,fui' i$ t $+

Distilled soirits Per nroof liter P 23.40
NRP 20%
316.33
Sparkling wines / NRP ner 750m1 bottle: P500 or less
Chamnasnes More than P500 885.73
Still wines and 140lo alcohol by volume or less 37.96/L
carbonated wines More than L4o/obut not more than2So/o 75.92lL
Fermented liquors Ifbrewed and sold at pub and restaurants 35.43/L
Others 25.42lL
*The specific tax rates are subject to 4%o annual adjustment every January 1 of each year

Net retailprice shall mean the price at which the distilled spirits is sold on retail
in at least 5 major supermarkets in Metro Manila. For distilled spirits marketed
outside Metro Manila, NRP shall mean the price at which the distilled spirit is sold
in at least 5 major supermarkets in the region.

Proof liter means a liter of proof spirits, A proof means 50% of alcohol content.
Thus, 70 proofmeans 70/2 or 35% alcohol content.

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 Chapter L1 - Excise Tax

Distilled spirits
Distilled spirifs is the substance known as ethyl alcohol, ethanol or spirits of wine,
including dilutions, purification and mixtures thereof, from whatever source, by
whatever process produced, and shall include whisky, brandy, rum, gin and
vodka, and other similar products or mixtures.

Distilled spirits have an additional ad valorem tax of zocl6 of the NRp, excluding
the value added tax and excise tax. The specific taxper proofliter is subject to 4%o
adjustment every year.

Illustration lt Distilled spirits

Pidol Brewery produces its famous Banayad whisky of 60 proof 750ml-bottle
sold at net retail price of P100/bottle. During the period, it produced a total of
15,000 bottles.

The excise tax shall be computed as:

Alcohol content in a 60 proot (60/2) 30o/o

Total alcohol content in liters (30o/ox.75L x 15,000 bottles) 3,375
Total proofliters = 3,375 alcohol x 2 6,750
Specific tax [6,750 proof liter xpZ3.40) P 157,950
Ad valorem tax [15,000 bottles x P100/bottle) x20o/o 300.000
Total excise tax P 457.950
Note:
1. 60 proof= 30% alcohol content.
2. 1,000 ml = l liter

Illustration 2: Distilled spirits

Royal Kalinga Distillers, Inc. produces its branded a Royal Gin. The 90-proofRoyal
Gin is sold in 1-liter bottles and packed in 12 bottles. A small bottle of 500-ml
Royal Gin, called "Ginito" is packed in 24 bottles. A bottle of Royal Gin and Ginito
sell at net retail prices of P120 and P65 each. During the period, a total of 500
packs ofRoyal Gin and 800 packs ofRoyal Ginito is produced.

The excise tax shall be computed as:

Alcohol contentin a 90 proof(90/2) 45o/o

Total alcohol of Royal Gin in liters (45o/oxlLxTZ x 500J Z,TOO

Total alcohol of Ginito in liters (45o/ox 0.50L x 24 x 800) 4.320
Total alcohol in liters 7,020
Multiply by: 2
Total proofliters 14,040
Multiply by: P 23.40
Total specific tax P 328,536

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Ad valorem tax:
Royal Gin [12 x 500 x P120) x20o/o P 144,000
Ginito [24 x 800 x P65) x20o/o 249.600 393.600
Total excise tax P___J22fi6

Wines
Wines normally have carbon dioxide (COz) on them due to the fermentation
process. COz is normally released when yeast and sugar mix making the wine
bubbly, sparkling or fizzy,thus the term"sparkling" wines. Sparkling wines have
sugar and yeast on them which makes them bubbly due to continuous
fermentation even after bottling. Wines with COzremoved are not bubbly or fizzy,
thus the term "still" wines. A carbonated wine is one which is artificially added
with carbon dioxide to influence character or taste of the wine.

Fortifiedwines mean natural wines to which distilled spirits are added to increase
their alcohol strength. Fortified wines containing more than21o/o of alcohol shall
be taxed as distilled spirits. Fortified wines means natural wines to which
distilled spirits are added to increase their alcohol strength.

Illustration
Quezon Winery produces various wines packed in cases of 12 bottles.
It produced
the following during a month in2019:

Class Bottle SRP Total case produced

Champagne 750 ml P 1,600 20 cases
Carbonated wine - 50 proof 750 ml 200 150 cases
Fortified wine - 60 proof 7L 1,20 80 cases

The excise tax shall be computed as follows:

Champagnes (20 cases x 12 bottles/case x P885'73J P 212,575.20

Carbonated wines (150 x1.2x750/L000) x75.92 102,492.00
Fortified wine:
- Specific tax: (30% x 80 x 12) xP23.40) P 6,739.20
- Ad valorem: (P120 x B0 x 12J x20o/o 23.040.00 29.779.20
Total excise tax P344.€461.0
Note:
1. The excise tax on champagne applies for 750m1 bottle regardless ofproof.
2. The champagne's net retail price is higher than P500, computed as followsl

Ultimate retail price P 1,600.00

Divide by: VAT inclusive rate ll?Vn
Selling price net of VAT P 7,428.57
Less: Excise tax 885.73
Indicated net retail price L-____542-84

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Fermented Iiquors
Fermented liquors includes beer, lager beer, ale, porter and similar products,
except tuba, basi, tapuy and similar products.

Illustration l: Fermented liquors

Beer-Gin Serbesa ferments beer from imported malt or ale and sells them in 500-
ml bottles at P32/bottle final retail price. The beers are sold in cases containing
24 bottles each, 300 cases ofbeers are produced in March 2019.

The excise tax shall be computed as follows:

Total cases produced 300

Multiply by: bottles per case 24
Total bottles 7,200
Multiply by: ml/botrle s00
Total ml produced 3,600,000
Divide by:ml/L 1.000
Total liters produced 3,600
Multiply by: Excise tax per liter P 25.42
Total excise tax E__915t2
Illustration 2= Fermented liquors
Reserva YMabaca ferments liquors from sugar cane which it ages in antique
Guzi
jars. The product called "basi" is branded as "Royal Basi d'e Kalinga,;
and is
marketed at P50O/gallon.

Basi rs not subject to excise tqx.

Conditional Tax-free R-emoval of Alcohol products

7. Removal of wines and distilled spirits for treatment of tobacco leaf
2. Removal of spirits for rectification
3. Removal of fermented liquor to bonded warehouses
4. Removal of damaged liquors
Denaturation of alcohol
when wines and distilled spirits are to be used for the treatment of tobacco
Ieaf by manufacturers of cigars and cigarettes, this is not human
consumption; hence, tax free, but such wines and distilled spirits must first
be suitable denatured.

Denatured alcohol of not less than 180o proof (90% absolute alcohol) when
suitably denatured and rendered unfit for oral intake is exempt fromexcise
tax Denatured alcohol used for motive power shall be taxedas petroleum
products.

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Alcohol rendered unfit for oral intake after denaturation but restored fit for
oral intake after undergoing fermentation, dilution, purification, mixture or
any other similar processes shall be subject to tax as alcohol products

Rectification of spirits
Spirits requiring rectification may be removed from the place of production
to another establishment for purposes of rectification without prepayment of
taxes but this requires submission of a joint bond by the distiller and the
rectifier conditioned on the rectifier's payment of the excise tax on the
rectified alcohol. No loss for rectification and handling shall be allowed. The
rectifier shall pay the excise tax on such losses. Rectifiers using spirits with
unpaid excise taxes shall be liable for the payment of the excise tax thereon.

Removal of fermented liquors to bonded warehouses

Fermented liquors may be removed or transported from the brewery or
other place of manufacture to a bonded warehouse used by him exclusively
for storage or sale in bulk of fermented liquor, not less than 1,000 liters at
one removal without prepayment of the tax under a permit which shall be
granted by the CIR.

Removal of damaged liquors

When fermented liquor has become sour or otherwise damaged so as to be
unfit for use as such, brewers may sell and after securing a special permit
from the ClR, remove the same without the payment of tax thereon, in cask
or other packages, distinct from those ordinarily used for fermented liquors,
each containing not less than 175 liters with a note of their contents
permanently affixed thereon.

EXCISE TN(ON TOBACCO PRODUCTS

Tobacco nroducts Tax rates
a. Tobacco twisted by hand or reduced into a
condition to be consumed in any manner other
than the ordinarv mode of drvins and cutting
b. Tobacco prepared or partially prepared with or P2.20/kgas of fanuary
without the use of any machine or instruments 1,201-9+
or without being pressed or sweetened
c. Fine-cut shorts and refuse, scrips, clippings,
cuttinss. stems and sweepinss of tobacco
d. On tobacco specially prepared for chewing so as P1.89/kg as offanuary
to be unsuitable for use in anv other manner 7.2019*
*subject to 4% yearly increase thereofter

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and ttes

Ad valorem tax 20Vo on net retail price

6.32/cigar as of lanuarv 1.,20L9*

1,201,8 to Dec.3l,20t9
1,2020 to Dec.37.2027
.L,2022 to Dec.31,2023
*subject to 470
-suDJecc yeorty increase
yeorly tncrease thereafter
40/o therealter starting January
lanuary 1,2024
cigars means all rolls of tobacco or any substitute thereof, wrapped in leaf
tobacco. cigorettes means all rolls of finely-cut leaf tobacco, or any substitute
thereof, wrapped in paper or in any other materials.

Duly registered cigarettes packed by machines shall only be packed in

twenties and other packaging combinations of not more than twenty.
Illustration
In May 2019, Sua-Quo company produced a toral of 8,000 kilos of dried tobacco
leaves from its plantation and processed the same into cigarettes.

The processing resulted to the following:

Product Packs Pieces / oack Net retail orice

Ciear 1,000 10 P 200/pack
Cisarette 6,000 20 P 100/nack

1,000 kilos ofthe dried leaves failed strict quality control and are discarded to be
sold as loose leaf tobacco to consumers for p 10O/kilo.

All of the products will be withdrawn for sale in domestic supermarkets except
for 1,500 cigarette packs which are ordered exported by a foreign customer.

Sua-Quo Company shall pay the following excise tax:

Cigar:
- Ad valorem tax = 1,000 packs x P200/pack x2Oo/o p 40,000
- xp6.32/pcs.
Specific tax = 1,000 packs x 10 pcs. 63,200
Cigarette: 6,000 packs x P35/packs 21,0,000
Loose tobacco: 1,000 kgs.xP2.20/kg 2.200
Total p_3t5rt00
Note:
L. The sale of lose tobacco to end users is subject to excise tax.
2. Lose tobacco leaf is exempt when the same is used in the manufacturing of tobacco products
which will ultimately be subiect to the excise tax.
3. Sua-Quo Company shall pay excise tax for the withdrawal ofthe 1,500 cigarettes pack for
export. It shall claim tax refund or tax credit upon showing proof ofactual exportation.

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Tobacco inspection fee

TobaccoDroducto lnsoectton fee rate-
Ciears P 0.50/thousand or fraction thereof
Cigarettes P 0.10/thousand or fraction thereof
Leaf tobacco P 0.02lkilosram or fraction thereof
Scraps and other P 0.03/kilogram or fraction thereof
manufactured tobacco

Removal of tobacco products without prepayment of tax

Tobacco products entirely unfit for chewing or smoking may be removed tax-
free for agricultural or industrial use. Stemmed leaf tobacco, fine-cut shorts,
refuse of fine-cut chewing tobacco, scraps, cuttings, clippings, stems or
midribs, and sweepings of tobacco may be sold in bulk as raw material by one
manufacturer directly to another without payment of the tax. Stemmed leaf
tobacco means leaf tobacco which has the stem or midrib removed and does
not include broken leaftobacco.

No tobacco products manufactured in the Philippines and produced for

export shall be removed from their place of manufacture or exported without
posting a bond of an export bond equivalent to the amount of the excise tax
thereon if sold domestically. Tobacco products for export may be transferred
from the place of manufacture to a bonded facility, upon posting of a transfer
bond, prior to export.

Tobacco products imported into the Philippines and destined for foreign
countries shall not be allowed entry without posting a bond equivalent to the
amount of customs duty, excise tax and VAT due thereon if sold domestically.

EXCISE TAXON PETROLEUM PRODUCIS

Taxrate Unitof.
Petroleum Droduct zot9 2020 measrile
Lubricating oils and greases including
but not limited to basestocks for lube oils P 9.00 P10.00 Iiter & kilogram
and greases, and additives
Processed sas 9.00 10.00 liter of volume
Waxes and petroleum 9.00 10.00 Kilosram
Denatured alcohol for motive power 9.00 1.0.00 liter of volume
Naphtha, regular gasoline, pyrolysis
gasoline and other similar products of 9.00 10.00 liter of volume
distillation
If used as raw materials in the
production of petrochemicals or as a 0.00 0.00
reolacement fuels for Dower olants
383
Chapter 1i- - Excise Tax
Taxrate, UnttoJ
Petnoleum oroduct 2019 2020 tneasure
Unleaded sasoline 9.00 10.00 ter of volume
Aviation turbo iet and aviation sas 4.00 4.00 ter of volume
Kerosene 4.00 5.00 iter of volume
Diesel fuel oil and similar fuel oils 4.50 6.00 ter of volume
Liouefied netroleum sas* 2.00 3.00 kiloeram
If used for motive nower Tax as diesel oil
If used for production of 0.00 0.00
petro chemical oroducts
Asphalts 9.00 10.00 Kilosram
Bunker fuel oil and similar fuel oils 4.50 6.00 liter of volume
Petroleum coke 4.50 6.00 metric ton
If used as feed stocks to power 0.00 0.00
generation facilities

Petroleum products to be used as raw materials

Petroleum products used as raw materials in the manufacture of other
petroleum products or as fuel for power plants are not taxable.

Examples:
a. Naphtha and pyrolysrs gasoline used as raw materials in the manufacture
of petrochemicals or as replacement fuels for power plants
b. Liquefied petroleum gas used in the production of petrochemicals
c. Petroleum coke used as feed stocks to power generation facilities

Bioethanol products to be subject to the excise tax herein must be denatured

before the release thereof from Customs in the case of importation or before
removal from the place of production if domestically produced.

Illustration 1
Petrochem pumps crude oil from its oilfield and feed them to its oil refinerywhich
transform the crude oil into various petroleum products.

The following were produced by the plant from a batch of crude oil in 20L9:

45,0001iters Gasoline
9,000 liters Aviation gas; 5,000 liters is kept in bonded storage tanks for
sale to international carriers
25,000 liters Diesel fuel
3,000 liters Bunker fuel
5,000 kilos Asphalt
1,200 liters Naphtha; 200 liters used in refining of petroleum products,
500 used in producing plastic products; the balance is sold.
384
Chapter 1l- - Excise Tax

Petrochem shall pay the following excise tax:

Gasoline(45,000litersxP10/literJ P 450,000
Aviation gas (9,000 - 5,000J x P 4/liter) 12,000
Diesel (25,000 liters x P 4.S/literJ 18,000
Bunker fuel (3,000 liters x P4.5/literJ 13,500
Asphalt (5,000 kilos x P9lkiloJ 45,000
Naphtha(L,200-200-500JxP9 4.500
Total P---I43J0O
Note:
1. Petroleum products sold to international carriers is exempt subiect to the requirement
that they must be stored in bonded storage tank and will be disposed only in
accordance with rules and regulations.
2. Naphtha used in refining or in the production of other petrochemical products or used
as fuel of power plants shall not be subiect to excise tax.

Illustration 2
Assume further that Petrochem used the 3,000 liter of the bunker fuel to produce
4,000 grease oil by mixing it with several additives'

The 4,000 grease oil is no longer subject to excise tax since it is produced from a
basestock (bunker fuel) on which excise tax is already paid' [Sec. LaB@), NIRC)

Illustration 3
Assume Petrochem subsequently exported 2l-,000 liters of the gasoline and
10,000 of the diesel fuel.

The proportionate excise tax paid on these items shall be claimed as tax credit or
tax refund upon showing proof of their actual importation.

Creditable excise tax

The excise tax paid on the purchase ofbasestock fbunker) in the manufacture
of excisable articles and forming part thereof shall be credited against the
excise tax due thereon. Any excess of excise tax paid on raw materials
resulting from manufacturing, blending, processing storage and handling
Iosses shall not give rice to a tax refund or credit.

ow
Note the followi
Used in production or
processing of products
subieit to excise tax
Naphtha, gasoline and
other similar products Exempt Exemot
Liquefied Detroleum gas Exempt Exemot
Petroleum coke Exempt
Bunker fuel Taxable but creditable

385
Chapter L1 - Excise Tax

Mandatory marking of all petroleum products

Imported or locally manufactured petroleum products such as but not limited
to unleaded premium gasoline, kerosene, and diesel fuel oil are required to
be marked after the taxes and duties thereon have been paid.

Products found in the domestic market which do not contain the marker or
which contain markets but are diluted beyond the acceptable percentage
approved by the Secretary of Finance shall be presumed that the same were
withdrawn with the intention to evade the payment of taxes and duties due
thereon.
Random field tesf will be periodically conducted in the warehouses, storage tanks,
gas stations and other retail outlets to inspect the quality and quantity offuel to
check incidence of fuel trafficking. Field testing are required to be properly filmed
and video-taped and documented.

A confirmatory test will be rendered on tested unmarked, adultered, or diluted

fuel to validate the findings of the field test. Confirmatory fuel test certificates
issued by fuel testing facilities shall be valid for any legal purposes from the date
of issue and shall continue admissible and conclusive evidence before any court.

Sale of Petroleum Products to Exempt Entities

Petroleum products sold to the following are exempt from excise tax:
L. International carriers
2. Entities exempted under tax treaties, conditional on reciprocal tax
exemption treatment
3. Entities which are exempt from direct and indirect tax

Petroleum products sold to international carriers must be stored in bonded

storage tank and may be disposed of only in accordance with the regulations
by the Secretary of Finance upon recommendation of the CIR.

EXCISE TAX MINERALS

Minerals, mineral products and quarry resources shall be taxed as follows:
Domesfiqlly
6.6flrrrradi i 'Inidbr#d
P 50/MT effective Jan.l,2OlB
Coal and coke P 100/MT effective lan. 1, 2019
P150/MT effective lan. 7, 2020
Non-metallic minerals and ouarrv resources 4o/o 4o/o
Copper, gold, chromite and other metallic
minerals 4o/o 4%
Indieenous petroleum 60/o
Natural sas and liquefied natural gas Exempt

386
Chapter 11 - Excise Tax

Indigenous petroleum shall include locally extracted mineral oil, hydrocarbon gas,
bitumen, crude asphalg mineral gas and all other similar or naturally associated
substances with the exception of coal, peat, bituminous shale and/or stratified
mineral deposits.

Minerals mean all naturally occurring inorganic substances ffound in nature)

whether in solid, liquid, gaseous or any intermediate state.
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 the mineral lands.

Hydrocarbon based fuel such as petroleum, coal or natural gas are derived from
living matters of past geologic times. While hydrocarbon fuels are organic while
mineral is inorganic.

Quarry resources shall mean any common stone or other common mineral
substances as the Director of the Bureau of Mines and Geo-Science may declare
to be quarry resources such as but not restricted to mal, marble, granite, volcanic
cinders, basalt, tuffand rock phosphate; provided, that they contain no metal or
metals or other valuable minerals in economically workable quantities.

Coke is a fuel with high carbon content derived from the anaerobic distillation of
coal or oil. It may also be formed by natural geologic processes. It is used in iron
smelting or fuel in stoves and forges. It should be differentiated with a related
product called petroleum coke which is obtained from crude oil as a by-product
of oil refineries. Petroleum coke is taxed at much lower tax.

Ad valorem tax on mineral products

1. Excise tax on metallic and non-metallic minerals
If domestically produced, the excise tax is based on the actual market
value of the gross output upon removal. If imported, it is based on value
used by the BOC in determining tariff and customs duties, net of excise tax
and VAT.

The gross output shall be interpreted as the actual market value of minerals
or mineral products, or of bullion from each mine or mineral land operated as
a separate entity without any deduction from mining, milling, refining, as well
as transporting, handling, marketing or any other expenses'

2. Excise tax on indigenous petroleum

The excise tax on indigenous petroleum is based on the fair international
market price on the first taxable sale, barter or exchange of such similar
transaction or the transfer ofindigenous petroleum in its original state to
a first taxable transferee.

387
Chapter l-1 - Excise Tax

Illustration 1
During the month, Feel-Ex Mining Company mined a total of 500 tons of gold-
copper concentrates. The concentrates were assayed to contain 0.0080/o gold and
1B% copper. Feel-Ex usually exports its concentrates.

The market value of the following in the London Metals Exchange (LMEJ were:

Gold price $L.493/trov ounce

Copper $5,700/ton
Each troy ounce is 31.10348 grams. Each ton is L,000,000 grams. The US Dollar
is trading P52/Pl.

The market value of the gross output shall be computed as:

Gold:
Total concentrates in tons 500
Multiply by: Gold content .0080/o
Gold in tons 0.04
Multiply by: 1,000,000 grams/ton 1.000.000
Gold in grams 40,000
MultiDlv bv: Gold orice/srams ($1,.492/3I.1,034$ $ 48
Gold price in dollar $ 1,920,000
Multiply by: Peso-Dollar exchange rate 52
Gold price in Peso P 99,840,000

Copper:
Total concentrate in tons 500
Multiply by: l9o/o
Copper in tons 90
Multiply by: $/ton $ 5.700
Copper price in dollar $ 513,ooo
Multiply by: Peso-Dollar rate S2
Copper price in Peso 26.676.000
Market value of gross output P 126,516,000
Multiply by: Excise tax rate 4o/o
Excise tax P____5*060j40
Note: Exported mineral products are subjectto excise tax not only the domestic sales.

Illustration 2
Assume the same data in illustration 1 except that Feel-Ex Mining sells its
concentrate to its subsidiary company, NoFeel Refinery. NoFeel smelted and
refined the concentrates yielding 3,100 troy ounce of pure gold and 96 tons of
refined copper.

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Chapter 11 - Excise Tax

Feel-Ex Mining Company shall pay the same tax as computed in Illustration 1.
Being a separate taxable person, NoFeel Refinery shall be separately imposed the
following excise tax on the refined minerals:

Gold:
Refined gold in troy ounce 1,300
Multiply by: Dollar price / troy ounce $ 1.493
Dollar price of the gold $ 1,940,900
Multiply by: Peso-Dollar exchange rate s2
Gold price in Peso P 100,926,800
Copper:
Refined copper in tons 96
Multiply by: $/ton $ sJ00
Copper price in dollar $ 547,200
Multiply by: Peso-Dollar rate 52
Copper price in Peso 28.454.400
Market value of gross output P 1.29,381.,204
Multiply by: Excise tax rate 4o/o
Excise tax P 5.t75.248

Query: What if the minerals were reftned by Feel-Ex Mining Company itself?
Only one tax shall be imposed. Feel-Ex shall only pay P5,L75,248.

Small Scale Miners

RA 11256 exempts registered small scale miners and accredited traders who
are selling gold to the Bangko Sentral ng Pilipinas (BSPJ from paying income
tax and excise tax. Note also that the sale of gold to the BSP is also exempt
from business tax.

Pursuant to RA 11256, gold which is sold, or eventually sold to the BSP, shall
be exempt from the payment of excise tax. If the excise tax due thereon is paid
prior to the sale of the gold to the BSP, the taxpayer may file a claim for refund
with the Commissioner of trnternal Revenue.

All gold sold to the BSP by accredited traders shall be presumed to have been
purchased by said traders from small-scale miners. (Sec. 4, RA 11256)

Illustration 1
Boss Allan is an operator of a small-scale mining claim. His groups produced a
total of 3,400 grams of gold nuggets and discs with specific gravity of 1,7.5
(roughly 90% purityl. He sold the gold production to the BSP. Upon final assay,
the BSP made a final settlement as follows:

389
Chapter 11 - Excise Tax

Gold P 6,900,000
Silver 200.000
Total P_l-rcq000
The sale of gold is exempt but the sale of silver is taxable. The excise tax shall be
computed as follows:
Sale of silver P 200,000
Multiply by: 4o/t
Excise tax P_______B*000

Illustration 2
Ceifar Cofia is a BSP-registered gold trader. He bought several kilos of gold and
sold them as follows:

Buyer Amount
Bangko Sentral ng Pilipinas P 8,100,000
]ewelers 2,400,000
Gold collectors 1,200,000

The excise tax shall be computed as follows:

Sale of gold to jewellers P 2,400,000

Sale ofgold to collectors 1.200.000
Total taxable sales P 3,600,000
Multiply by: 4o/o
Excise tax P_L44000
Import of minerals
Note that imported minerals is exceptionally subject to excise tax upon the
basis used by the Bureau of Customs in computing customs duties (i.e.
dutiable valueJ.

EXCISE TAX MISCELLANEOUS ARTICLES

AUTOMOBILES
Automobiles refer to any four or more wheeled motor vehicle regardless of
seating capacity which is propelled by gasoline, diesel, electricity or other
motive power.

Utility vehicles such as buses, trucks, cargo vans, jeepneys or jeepney

substitutes, single cab chassis and special purpose vehicles such as cement
mixer, fire truck, boom truck, ambulance, and or medical unit and off-road
vehicles for heavy industries shall not be considered automobiles.

390
Chapter 11 - Excise Tax

Ad valorem tax on manufactured or imported au tomobiles

acturer'sorlmpo@
Fanuf Tax rate
Uo to P 600.000.00 4o/o

P 600.000 to P 1,000,000 t0o/o

P1.000,000 to P 4 000,000 20o/o

Over P 4,000,000 50o/o

*Net of excise tox and VAT

Exception to the excirse tsrx r:rtes:

1. liybrid vehicles shall be subiect to 50% of the applicable excise tax'
2. Purely electricvehicles and shall be exempt on excise tar( on automobiles'
3. Pick-ups

Hybrid vehicle means a motor vehicle powered by electric eneTry, with or

,,,iithout provision for charging in combination with gasoline, diesel or any
other motive Power.

Illustration 1
Ditto-Luck Cars manufactures various automobile models. It completed the
following units:
Wholesale
Model CIass orice Produced Sold
Snail Runner SUV - easoline P 800,000 8 6
Pick-uo truck -diesel 1,200,000 7 5
Turtle Lander
Rabbit Cruiser Electric car 3,000,000 5 4
Pteranodon Bus - diesel 5.000,000 4 2

Snorts car - hvbrid 7.000,000 4 3

Cicada Luxury

The excise tax shall be computed as follows:

Total Tax
Model Price ow. wholesale rate Excise tax
Snail Runner P 800,000 8 P 6,400,000 700/o P 640,000
Turtle Lander 1.200.000 7 B 400000 0o/o

Rabbit Cruiser 3,000,000 5 15,000,000 0o/o

Pteranodon 5,000,000 + 20.000,000 Oo/o

7,000,000 + 32,000,000 5Oo/o/Z 8.000.000

Cicada Luxury
Total P 8,et0000

Note:
l. The excise is based on units produced not on the units sold' The vAT on the sale shall be
based on the units sold.
2. Electric vehicles and pick-up are exempt. Hybrid vehicles are subject to half-tax'
391
 Chapter 1l- - Excise Tax

Illustration
2
Daza company manufactures cars and motorbikes powered solar enery or by a
combined gasoline and hydrogen generated from hydrolysis. During the monrh,
Daza completed a unit each of its car and motorbike model.

wholesale
Hybrid water car P 2,000,000
Hybrid water bikes 800,000
Solar car 4,000,000
The excise tax shall be computed as follow:

Hybrid water car P 2,000,000

Multiply by: Excise tax rate 20o/o
Excise tax L _-r1QI)JOO

The solar car is electric powered vehicle and hence exempt. The water bike does
not fit into the definition of automobile being a two-wheeled vehicle. sad to say,
the water car does not fit into the current deftnition of a "hybrid car,,.

Net manufacturer's or Importer,s selling price

This refers to the price, net of excise tax and vAT at which locally
manufactured/assembled or imported automobiles are offered for sale to
dealers, or the public directly or through their sales agents, as reflected in the
manufacturer's or importer's sworn declaration oi in their sales invoice,
whichever is higher.

Minimum prices
The net manufacturer's or importer's selling price shall include the value of
ajr conditioning uni! radio and mag wheels including the installation cost
thereof whetler or not the same is actually installed inlhe automobile.

The net manufacturer's selling price shall not be less than:

1. B0o/o x (Suggested retail price - excise tax - VAT); and
2. 1L0o/o x (Cost of manufacture or import + selling expenses)
The suggested retail price shall not be less than the actual selling price ofthe
automobile when sold in the market.

Illustration 1
Alphen manufactures mid-size SUVs which is exclusively sold through accredited
dealers or resellers. Alphen declared the cars with a manufacfurei,s wholesale
price of P900,000 and paid tax of 1,0o/o or p90,000 per car. The car is
offered by
resellers to the public at a suggested final retail price ofp1,s45,600. The standard
cost to produce the unit is P 700,000 while cost to sell is z0o/o of cost.

The manufacturer's price shall be tested as follows:

392
Chapter 11 - Excise Tax

Declared manufacturer's selling price P eoIIO0O

Suggested retail price of dealers or resellers P 1,545,600

Divided by: t1296
Selling price inclusive of excise tax but after VAT 1,380,000
Less: Excise tax Paid 90.000
Suggested retail price, net ofexcise tax and VAT 1,290,000
Multiply by: 80%
80o/o Price limit PIO:UIJ}IIO
Unit cost to produce P 700,000
Cost to sell (P700,000 x20o/o) 140.000
Total cost P 840,000
Mark-up rate 110%
Cost plus limit -
P__9.:14000

The manufacturer's net selling price shall be based on the higher the 800/o price
Iimit, thus the correct excise tax shall be established as follows:
Manufacturer's presumed selling price P L,032,000
Multiply by: Tax rate at Price 20o/o
Excise tax P 206,400
Less: Excise tax paid 90.000
Deficiency excise tax P__lttutoo

Illustration 2
Assume the same information in the above illustration, except that Alphen
declared the car at P1,010,000 and paid 200lo excise tax of P202,000'

The manufacturer's price shall be tested as follows:

Declared manufacturer's selling price PlCIlo.olD

Suggested retail price ofdealers or resellers P 1,545,600
Divided by: 7L2o1'
Selling price inclusive of excise tax but after VAT 1,380,000
Less, Excise tax paid 202'000
Suggested retail price, net ofexcise tax and VAT 1,178,000
tututtipty uy: 80%
B0o/o price limit P--342AOO

Unit cost to produce P 700,000

Cost to sell (P700,000 x20o/o) 140.000
Total cost P 840,000
Mark-up rate 11,00/o

Cost plus limit P_524,00jJ

393
 Chapter 1,1 - Excise Tax

The P1,010,000 manufacturer's declared price shall be used since it is

higher. No
assessment for deficiency excise tax shall be imposed.

Imported vehicle not for sale

Imported vehicles not for sale shall be subject to the excise tax on the
total
landed value, including transaction varue, customs duty and all other
charges.

Illustration
Juan imported an automobile for personal use which had the following costs:

Purchase price P 2,000,000

Other cost to bring goods in the philippines 300,000
Other inland costs, other than customs duties 200,000

The importation is subject to 30%o customs duties and 20o/o excise

tax.

The customs duties shall be computed from the transaction value

as follows:

Purchase price P 2,000,000

Other cost to bring goods in the philippines 300.000
Transaction value P 2,300,000
Multiply by: 30o/o
Customs duties
P___690-000

The excise tax shall be computed as follows:

Purchase price P 2,000,000

Other cost to bring goods in the philippines
300,000
Other in-land costs 200,000
Customs duties 590.000
Total landed value P 3,190,000
Multiply by: 20o/o
Excise tax
P__i38-000
The VAT on importation would be computed as:

Purchase price P 2,000,000

Other cost to bring goods in the philippines
300,000
Other in-land costs
200,000
Customs duties
590,000
Excise tax
638.000
Landed cost P 3,929,000
Multiply by:
l2o/n
VAT on importation
P___459J60

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Chapter l-1 - Excise Tax

Technical Importation
Automobiles imported by exempt persons such as ecozone locators, the same
is not subject to excise tax. When the same is subsequently sold to taxable
persons, the same shall be subiect to excise tax at the higher of the
consideration paid and the depreciated cost.

Al)o/odepreciation expense shall be provided but not in excess of50% ofthe

original cost or value.

Illustration
Hanjin, an ecozone locator, sold 2 company cars to Olongapo Company for
P900,000 each. Details about the tvvo cars were as follows:

Calmodel Landed costs Yeagin_servic.c.

Mazda2 P 1.400.000 4 vears
Ford Exoedition P 3.000,000 6 vears

The presumptive import costs for purposes of the excise tax on the importation
to be paid by OlongaPo shall be:

Minimum Selling Price Taxbasis

Mazda} (P1,.4Mx60%) P 840,000 P 900,000 P----900,00O
Ford Exp. (P3M x 50%) 1,500,000 900,000
--1J00J0O
The excise tax shall be computed as follows:

Mazda 2 [P 900,000 xLUo/o) P 90,000

Ford Expedition [P1.5M x20o/o) 300.000
Total excise tax P____3_90-000

The vAT on importation to be paid by olongapo shall be computed as follows:

Mazd.a2 P 900,000
Ford Expedition 1'500'000
Total P 2,400,000
Add: Excise tax 390.000
Presumed landed cost P 2'790,000
Multiply by: vAT rate 72o/o
VAT on importation P---334f00
Tax Exempt Removals of Automobiles
1. Removal for exPort
2. Delivery to tax-exempt persons or entities
3. Removals for delivery and exclusively within the Freeport zone
4. Removal of automobiles for test run

395
Chapter LL - Excise Tax
Removal for eqlort
No excise tax shall be imposed on vehicles removed for export, subject to the
following conditions:
L. Permit to export - to be applied in writing from the clR immediately
before removal
2. Direct delivery to vessel - automobiles for export must be loaded directly
to the vessels or means of transportation carrying them outside the
Philippines
3. Proof of exportation - to be submitted within 30 days from the date of
removal
4. Exporter's bond - may be required when deemed necessary by the BIR
Delivery to tax-exen{rt persons or entities
Tax-exempt persons or entities include:
1. Embassies of foreign government, subject to the principle of reciprocity
2. Tax-exempt organizations, such as the ADB and IRRI
3. other tax-exempt entities covered by tax treaties, conventions or
international agreements to which the philippines is a signatory, subject
to the principle of reciprocity

Manufacturer's, assemblers or importers of automobiles are allowed to sell

to persons or entities without prepayment of ad valorem tax, subject to the
following conditions:
1. Application by the tax-exempt customer or importer in writing for the
approval of exemption.
2. Favorable indorsement from the concerned government agency such as
the Department of Foreign Affairs (DFA) for embassies
3. Written approval of the CIR
4. Authenticated trre copy of the purchase order indicating the description
of the automobiles to be purchased, the chassis and engine numbery and
the place and location of the point of delivery.
5. The approval shall be on a per-transaction basis.
Tax credits or tax refunds
If tax exempt persons purchased automobiles in which the excise tax thereon
is paid or where the ad valorem tax is erroneously or illegally collected, such
tax exempt person may file a tax refund or tax credit with the clR.

Removals for delirrcry and exclusively withln the preeport zonq

Automotilesimported direcdy into the legislated freeport zorres from abroad
or purchased frorn establishments located within thi customs territory for
use-exclusively within the freeport zone shall be exempt from the imposition
ofthe excise tax
396
Chapter 11 - Excise Tax

Removal of automobiles for test run

Should an automobile be removed for test run, prior notice of the test should
be given to the appropriate BIR Office that may allow the test run; provided,
that the unit under the test run shall be returned to the plant on the same day'

In the event that the manufacturer/assembler failed to return the said unit to
the manufacturing/assembly plant within the prescribed period, the ad
valorem tax otherwise due thereon shall be immediately due and
demandable.

NON.ESSENTUTGOODS
A20o/o ad valorem tax is imposed upon the following non-essential goods:
1. lewelry
2. Perfume and toilet waters
3. Yachts and other vessels intended for pleasure or sports

All goods commonly and commercially known as jewelry, whether real or

imitation, pearls, precious, semi-precious stones and imitations thereof;
goods made of, or ornamented, mounted or fitted with, precious metals or
imitations thereof or ivory, opera glasses and lorgnettes.

Precious metals include platinum, gold, silver and other metals of similar or
greater value. Imitations include platings and alloys of such metals.

The following are not jewelry and hence exempt:

a. Surgical and dental instruments
b, Silver-plated wares
c. Frames or mountings for spectacles or eyeglasses
d. Dental golds or gold alloys and other precious metals used in filling,
mounting or fitting of the teeth

Illustration 1
Afff Cionado, Inc. manufactures perfumes, precious jewelry, fashion bags and
clothes. It produced the following during the month:

Wholesale Suggested
orice retail price
Perfumes P 5.000,000 P 12,000,000
Iewelrv 7,000,000 15.000.000
Fashion bass 1,500,000 4.000,000
Designer clothes 4.000,000 11,000,000

397
Chapter 11 - Excise Tax

The excise tax shall be computed as:

Perfumes [P6,000,00 0 x 20o/of P L,200,000

Jewelry [P8,000,000 x 20o/of 1.500.000
Total P 2.800.000

Note that fashion bags and designer clothes though pricy are not currently
subjected to excise tax.

Illustration 2
Wong Enterprise imported the following luxury vehicles and vessels:

Landed cost Selline orice

Hvbrid vacht P 12,000,000 P 21,000.000
Hybrid sports car 5,000.000 12,000.000

The excise tax shall be computed as:

Yacht [P1 2,000,000 x 20o/o] P 2,400,000

Sports car [[P12,000,000 x 50%J x 50%] 3.000.000
Total L-5rl00J0O
Yacht is taxed as non-essential goods whereas the sports car is taxable as an
a'rtomobile. Imported yacht are taxable on landed costs whereas imported
vehicles are taxable on importer's selling price. There is no half-tax rule on non-
essential goods.

NON.ESSENT/IL SFRWCES
A tax of 5% on gross receipts derived from the performance of services, net
of excise tax and vAT, on invasive cosmetic procedure, surgeries, and body
enhancement directed solely towards improving altering, or enhancing the
patient's appearance and do not meaningfully promote the proper funIuon
ofthe body or prevent or treat illness or disease.

Examples of taxable invasive cosmetic procedures:

Chin augmentation Eyelid surserv

Mammonlastv Facelift / NecHift Vasinal olastic surserv
Breasdift Thread lift Auto Arafting and otoDlastv
Buccal fat removal Buttocks augmentation RhinoplasW/Alar fimmins
Embedded protein Hair restoration/ Abdominoplasty or
threads transplantation TummvTuck

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Chapter 11 - Excise Tax

Examples of exempt non-invasive cosmetic procedures:

Acupuncture Non-surgical face lifting Dermal fillers (Cross-
reiuvemafion therapy and skin tightening using llnked and non-
radio frequency crosslinked'l
Air dissector Cleanings and facials Peelinss fface and bodvl
Collagen induction CO2 fractional laser Injectibles and weight
theraov resurfacins manasement treatment
Botulinum toxin Laser and light Body treatment and
iniection /treatment treatment contouring procedures

Illustration 1
Dr. Becky Below conducted several operational procedures and treatment on
Beshie Zander, an internet sensation idol.

The following amounts were agreed before any VAT and excise taxes:

Orthognathic surgery P 800,000

Breastlift 200,000
Cataract surgery 100,000
Liposuction 140,000
Ultraviolet skin tanning 60,000
Teeth brace for underbites correction 40,000

The orthognathic surgery was intended to correct her facial deformity. The skin
tanning procedure was intended to give her the hot"morena" looks.

The excise tax shall be computed as:

Breastlift P 200,000
Liposuction 140,000
Total P 340,000
Multiply by: 5o/o
P_17*0_00
Illustration 2
Dina Malusog decided to undergo a Iiposuction procedure and sought the
services ofDoc T. Doc T charges Dina P50,000 for the services rendered.

Scenario 1: The procedure is conducted in a cllnlc outside a hosnital

Assume that Doc T conducted the liposuction procedure in a clinic outside a
hospital.

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Chapter 1l- - Excise Tax

Case 7: The P50,000 fee is agreed inclusive of VAT but exclusive of excise tax

Original price, inclusive of VAT P 50,000.00

Divide by: L12o/o
Gross receipts P 44,642.86
Add: 5% Excise tax(P44,642.85 x 5%) 2,232.t4
1,Zo/oYAT (P44,6+2.85 + P2,232.'J,5) x 1,2o/o) 5.625.00
Total amount to be collected from Miss Dina P__52J00-00

Doc T shall record the following in his book:

Cqsh P 52,500.00
Excise tox expense 2,232.74
Excise tax payable P2,232.14
OutputVAT 5,625.00
Service income 46,875.00

Note: The service income is inclusive of the excise tax.

Case 2: The P50,000 fee is agreed inclusive of both VAT and excise tox

Original price, inclusive of VAT and excise tax P 50,000.00

Divide by: l72o/o
Gross receipts, net ofVAT but inclusive ofexcise tax P 44,642.86
Divide by: L05o/o
Gross receipts, net ofVAT and excise tax P 42,517.07
Add: 50lo Excise tax (P42,51-7 x5o/o) 2,125.85
t2o/oYAT (P42,577.00 + P2,|25.BS) x 12o/o) 5.357.1,4
Total amount to be collected from Miss Dina P__50J00J0

Doc T shall record the following in his book:

Cash P 50,000.00
Excise tax expense 2,125.85
Excise tax payable P2,125.85
Output VAT 5,357.14
Service income 44,642.86

Scenario 2: The Drrcedure ls conducted ln a hospital

Assume that the liposuction procedure is done by Doc M, an individual
practitioner operating a clinic inside a hospital. Assume that the hospital charged
P20,000 for hospital supplies, and the use of the facilities and operating room
aside from the P50,000 professional fee of Doc M which is agreed to be inclusive
ofVAT but exclusive of excise tax.

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Chapter 1L - Excise Tax

The total billing for Miss Dina shall be computed as follows:

Hospital fees:
Billings by hospital P 20,000.00
Add: 5%o Excise tax [P20,000 x 5%J 1.000.00
Total P 2L.000.00
Profsssi.onalfees:
Gross receipts [P 50,000.00 /112o/o) P 44,642.86
Add: 5%o Excise tax (P44,642.85 x 5%) 2,232.L4
L20/o Y AT (P 4+ ,642 .BS + P2 ,232.L5) x 72o/o) 5.625.00
Total charges of Doc M P 52.500.00
Total amount to be collected from Miss Dina P__73500.00

Remember that hospital services are exempt from VAT, except those rendered by
professionals.

The hospital shall record the following in its books:

Cash P 21,000.00
Excise tax expense 1,000.00
Excise tax payable P 1,000.00
Service income - non-VAT 21,000.00

Cash P 52,500.00
Payable to Doc M P45,803.58
Excise tox payable for Doc M 2,232.14
Expanded withholding tax payable 4,464.28

The amount to be released from Doc M is computed as:

Total due from Miss Dina in behalf of Doc M P 52,500.00

Less:
Withheld excise tax P 2,232.L4
Expanded withholding tax
(P44,642.85 x70o/o) 4.464.28 6.696.42
Net due to Doc M P__4580318

Doc M shall record the same in his books:

Accounts receivables P 45,803.58

Excise tax expense 2,232.14
Prepaid tax expense 4,464.28
Service fee P46,875.00
OutputVAT 5,625.00

401.
Chapter 11 - Excise Tax

SWEETENED BWEMGES
Sweetened beverages (SBs) refers to non-alcoholic beverages of any
constitution 0iquid, powder, or concentrates) that are pre-packed and sealed
in accordance with the Food and Drug Administration [FDA) standards, that
contain caloric and non-caloric sweeteners added by the manufacturers.

SBs includes:

Sweetened iuice drinks Energy and sports drinks

Sweetened tea Flavored water
All carbonated beverases Cereal and grain beveraaes
Other powdered drinks not classified Other non-alcoholic beverages that
as milk iuice, tea and coffee contain sugar

caloric sweeteners include sucrose, fructose, and glucose that produces a

certain sweetness.

Non-caloric sweeteners refer to a substance that is artificially or chemically

processed that produces a certain sweetness, such as aspartame, sucralose,
saccharin, acesulfame potassium, neotame, cyclamates, and other non-
nutritive sweeteners approved by the FDA,

High fructose corn sugar (HFCS) refers to sweet saccharide mixture

containing fructose and glucose which is derived from corn and added to
provide sweetness to beverages, and which include other similar fructose
syrup preparations.

Tax rate
Product description fner literl
Using purely caloric sweeteners, and purely non-caloric P 6.00
sweeteners or a mix of them
Using purelyhigh fructose corn syrup orin combination P 72.00
with any saloric or non-caloric sweetener
Using purely coconut sap sugar and purely steviol Exempt
glycosides

Illustration 1
Angca Cola Manufacturing Company is about to remove L00 cases of Super Cola
using HFCS and non-caloric sweeteners. Each case contains 6 bottles of l-.5 liters
each.

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Chapter 11 - Excise Tax

The excise tax shall be computed as:

Number of cases 100

Multiplied by: No. of bottles per case
Total bottles 600
Multiplied by: Liter content per bottle 1.51
Total volume in liters 9001
Multiplied by: Excise tax rate P 12.00
Total excise tax to be paid before removal PI0A0!-0O
Illustration 2
Frooty f uicy Corporation imported 50 cases of four seasons powdered juice using
caloric and non-caloric sweeteners and non-caloric sweeteners containing 144
packs by 25 grams. Each 25 packs can make 1 liter per serving suggestions
appearing in the label.

The excise tax shall be computed as:

Number of cases 50
Multiplied by: No. of packs per case t44
Total packs 7,200
Multiplied by: Serving suggestion per pack lL
Total volume in liters 7,200L
Multiplied by: Excise tax rate P 6.00
Total excise tax to be paid before removal P--43200-00

Exempt products from Excise Tax

The following shall not be subject to the excise tax on sweetened beverages:
1. All milk products, including plain milk, infant formula milk, follow-on
milk, growing up milk, powdered milh ready-to-drink milh flavored
milk, and fermented milk.
2. Soymilk and flavored soymilk
3. 700o/o natural fruit juices
4. 100o/o natural vegetable fruit juices
5. Meal replacement and medically indicated beverages
6. Ground coffee, instant soluble coffee, and pre-packed powdered coffee
products

Milk producfs refers to products obtained by processing of milll which may

contain food additives, and other ingredients functionally necessary for the
processing. Dairy producfs are not synonymous with milk products and hence
taxable.

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Chapter 11 - Excise Tax

Transfer of raw materials

Manufacturers of sweetened beverages subject to tax shall not be allowed to
transfer or remove raw materials from place of production, except when the
transfer or removal thereof is intended for further processing to its other
registered production or toll-manufacturing plants and shall be accompanied
by an Excise Tax Removal Declaration [ETRD).

Raw materials shall refer to chief substance or ingredients of any constitution

such as liquids, syrups, powder, concentrates for the production of
sweetened beverages but shall not include packaging materials and supplies.

Transfer of semi-processed goods

The transfer of semi-processed goods such as syrups, puree, concentrates
sold to fast food chains where they are mixed with carbonated water and
dispensed through soda vending machines shall be considered as finished
goods subject to excise tax.

Beverages consumed within the place of production

Sweetened beverages that are produced or manufactured and are
subsequently consumed within the place of production shall be subject to the
payment of excise tax by the manufacturer.

Export of sweetened beverages

Sweetened beverages intended for export may be removed from the place of
production without the prepayment of excise tax, subject to the following
conditions:
1. Shipment permit
A permit per shipment shall be secured from the BIR office where the
taxpayer is required to be registered as an excise taxpayer.
2. Suretybond
3. Directtransportandloadingtotheinternationalshippingvesselorcarrier
for direct shipment abroad
4. Proofofexportation
5. Marking of the primary container with "Exported from the Philippines"

404