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EXCISE TAX THEORY
1) DEFINE: Excise tax, as used in the code, refer to taxes applicable to certain specified goods or articles, manufactured or produced in the Philippines for domestic sale or consumption or for any other disposition and to things imported into the Philippines. 2) REQUISITIES: a) goods are for domestic sale or consumption b) goods are enumerated by the law. Goods subject to excise tax may likewise be subject to the VAT, but not to the percentage tax. To compute excise tax: do not include the VAT in the tax base. To compute the VAT: include the excise tax in the tax base.
KINDS OF EXCISE TAX: 1) Specific tax - if imposed on a physical unit of measurement. 2) Ad valorem tax - if based on the selling price or other specified value of the goods.
ARTICLES SUBJECT TO EXCISE TAX:
A. Alcohol Products: distilled spirits, wines, fermented liquor B. Tobacco Products Except: a) removal of tobacco entirely unfit for chewing or smoking to be used for agriculture or industry (137) C. Petroleum Products Except: a) petroleum products sold to foreign international carriers subject to reciprocity (132) NOTE: Only in the case of petroleum can the product be removed from the place of production without payment of excise tax, (177, 157). D. Miscellaneous Articles Includes: a) automobile b) non-essentials, like jewelry, perfumes and vessels for pleasure or sports. E. Mineral Products- Minerals mean all naturally occurring inorganic substances found in nature, whether in solid, liquid, gaseous or intermediate stage. Include: a) coal and coke b) all non-metallic minerals and quarry resources c) all metallic minerals d) indigenous petroleum Only mineral products, except coal and coke, are not exempt if exported (127-d).
University of San Carlos Accountancy Department Tax lien follows the goods if the excise tax has not been paid, making the person in possession liable for the tax due, regardless of the good or bad faith. (The only other case where this is true is in taxes on importation). Good faith, however, is a defense against criminal prosecution. 5) Persons liable – A) Excise taxes on domestic products shall be paid by: a. b. c. d. The manufacturer; The producer; The owner or person having possession thereof should domestic products be removed from the place of production without the payment of the tax; or The first buyer, purchaser or transferee for local sale, barter, or transfer, in the case of indigenous petroleum, natural gas or liquefied natural gas.
Excise taxes on imported articles shall be paid by: a. b. c. The owner/importer; The person who is found in possession of the imported articles; or The purchasers or recipients of the tax-free articles bought or imported into the Philippines by persons, entities, or agencies exempt from tax which are subsequently sold, transferred or exchanged in the Philippines to non-exempt persons or entities.
6) Filing of Excise Tax Return and Payment of Tax – A) Persons Subject: Every person liable to pay excise tax shall file separate return for each place of production. B) Time for Filing of Return and Payment of Tax: 1. On domestic products: 1.1 In general, the return shall be filed and the tax shall be paid before removal of domestic products from the place of production.
1.2 1.3 1.4
On locally manufactured petroleum products and indigenous petroleum, the excise tax shall be paid before removal from the place of production of such products. The excise tax on non-metallic mineral products or quarry resources shall be due and payable upon removal of such products from the locality where mined or extracted. 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 15 days after the end of the calendar quarter when such products were removed.
2. On imported articles: 2.1 The excise tax on imported article shall be paid before the release of such articles from the customs house; 2.2 For imported mineral or mineral products, whether metallic or non-metallic, the excise tax due thereon shall be paid before their removal from customs custody. 7) Place for Filing of Return and Payment of Taxa) The return shall be filed and the tax paid to any authorized agent bank or revenue collection officer, or duly authorized city or municipal treasurer of the Philippines.
University of San Carlos Accountancy Department b) In the case of locally produced or extracted minerals and mineral products or quarry resources, the return shall be filed with and the tax paid to the RDO having jurisdiction over the locality were the same are mined, extracted or quarries.
8) Exemption of Certain Articles – a) Manufacturers of cigars and cigarettes may withdraw from bond, free of excise tax, local and imported wines and distilled spirits in specific quantities and grades for use in the treatment of tobacco leaf to be used in the manufacture of cigars and cigarettes, but such wines and distilled spirits must first be suitably denatured. Domestic alcohol of not less than one hundred eighty (180) degrees proof (90% absolute alcohol) shall, when suitably denatured and rendered unfit for oral intake, be exempt from the excise tax. When any fermented liquor has become sour or otherwise damaged so as to be unfit for use as such, brewer may sell and after securing a special permit from the Commissioner, under certain conditions as may be prescribed by the rules, remove the same without payment of the tax therein. Products of tobacco entirely unfit for chewing or smoking may be removed free of tax for agricultural or industrial use, under such conditions as may be prescribed by the rules.
9) Conditional Tax-Free Removal of Certain Articles – a) Spirits requiring rectification may, under certain conditions as may be prescribed by the rules, be removed from the place of production to another establishment for purposes of rectification without the prepayment of the excise tax. Any brewer may remove or transport from his brewery or transport from his brewery or other place of manufacture to a bonded warehouse used by him exclusively for the storage or sale in bulk of fermented liquors of his own manufacture, any quantity of such liquor, not less than 1,000 liters at one removal, without the prepayment of the tax thereon under a permit which shall be granted by the Commissioner of Internal Revenue.
SPECIAL SANCTIONS (applicable only to Excise Taxes)
a) BIR agents may enter a house or building where the unpaid articles are kept, and search and seize the same, even without a warrant. (Note that the agent is allowed even to enter a dwelling without a warrant, a privilege which event the Customs Commissioner does not have - he may search and seize without a warrant on any building not a dwelling. b) BIR agents may search any vehicle believed to carry such. c) BIR agents may detain any package if with good reason to believe that the excise taxes have not been paid, or if the removal would violate the law. But summary detention is only for 7 days beyond which there must be legal process or intervention of proper BIR officer. d) When the articles have been paid, they must be removed from the warehouse or factory, else forfeiture. e) When articles are unlawfully removed from such factory, or from the customs if imported, without paying the taxes, they shall be forfeited. f) Mere possession or ownership of unpaid articles, and mere possession of tax-exempt items other than those to whom they are legally issued, may subject the person to fine &/or imprisonment. Excise tax is refunded if the product is exported, because by definition, the goods have to be sold or consumed domestically.
University of San Carlos Accountancy Department
Excise taxes, like percentage taxes, are imposed only once, unlike the VAT.
APPLICATION: Percentage ------Stockbroker Stockdealer Lessor of realty Lawyer's fee Beverages Jewelry Exported cigarettes Cigarettes How to determine: First find out if the article is subject to the percentage tax, by looking at the enumeration of the law. If subject to percentage tax, stop, because the article can no longer be subject to VAT and excise tax. Second, determine if subject to excise tax by asking (1) if for domestic consumption, and (2) if enumerated. If yes, include the excise tax in the selling price, for the purpose of computing the VAT. Third, to see if VAT applies, remember that all goods and services are taxable unless exempted or O-rated transaction. So check the enumeration. no yes no no no no no no Excise -------no no no no yes no yes VAT ----yes no no yes yes no yes
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