Excise Taxes Chapter 11 PDF

DEPARTMENT OF ACCOUNTANCY HOLY ANGEL UNIVERSITY EXCISE TAX EXCISE TAX - Is a hybrid consumption tax with a regulatory overture. It is imposed only on certain goods or services. - Generally levied at the point of production or importation - Normally applies when the goods are...

DEPARTMENT OF ACCOUNTANCY HOLY ANGEL UNIVERSITY EXCISE TAX EXCISE TAX - Is a hybrid consumption tax with a regulatory overture. It is imposed only on certain goods or services. - Generally levied at the point of production or importation - Normally applies when the goods are intended for Domestic Consumption. - If exported, the manufacturer or producer of the goods subjected to excise tax may claim tax credit or tax refund for the excise tax paid. SCOPE OF EXCISE TAX limited only to certain goods with the exception of cosmetic surgery – the only service currently subject to excise tax. On other countries, even vices such as gambling or morally damaging activities as prostitution are taxed. List of Excisable Articles and Services in the Philippines A. Alcohol Products B. Tobacco Products C. Petroleum Products D. Mineral Products E. Miscellaneous Articles F. Non-essential Services Timing of Excise Taxation Excisable article or Taxable at the point of service Import Production Sale Alcohol Products Yes Yes Tobacco Products Yes Yes Petroleum Products Yes Yes Mineral Products Yes Yes Automobiles Yes Yes Non-essential goods Yes Yes Sweetened beverages Yes Yes Non-essential services Yes NATURE OF PHILIPPINE EXCISE TAX A. Excise Tax as a regulatory tax I. Environmental Tax II. Sumptuary Tax III. Sin Tax B. Excise Tax as an indirect tax C. Excise Tax as a consumption tax D. Excise Tax as an additional business tax E. Excise Tax as specific and ad valorem tax  Differences between excise tax and the other business tax Excise Tax Other Business Tax Indirect Tax levied at the point of production or Levied only at the point of sale importation Specific or per unit tax Purely ad valorem tax Covers the production or import of sale of narrower Sale of almost all products and services range of products or services Imposes heavier tax rates Fairly reasonable May subject even non-business producers Covers only those engaged in business A revenue tax with a regulatory overture as it intends Purely levied to raise revenue to curb health risks, or social, moral, or environmental wrongs Similarities of excise tax and the other business tax 1. Generally a consumption tax 2. Imposed on selling price 3. Indirect taxes Types of Excise Tax 1. Specific Tax 2. Ad valorem Tax BASIS OF AD VALOREM TAX Locally produced goods locally produced goods imposed with ad valorem tax is subject to tax on Gross Selling Price Manufacturer’s or producer’s sworn statement is required manufacturer 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 the manufacture or production plus expenses incurred or to be incurred until the goods are finally sold. BASIS OF AD VALOREM TAX 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 TAX COMPLIANCE REQUIREMENTS Who are the persons liable to excise tax? For domestically produced excisable article WHO ARE THE PERSONS LIABLE TO EXCISE TAX? For domestically produced excisable article General rule: Producer Excise tax is paid by manufacturers or producers of excisable goods or service in the Philippines for domestic sale or consumption, and importers of excisable goods. TAX COMPLIANCE REQUIREMENTS Who are the persons liable to excise tax? Exception rule: 1. The excise tax on INDIGENOUS PETROLEUM, NATURAL GAS OR LIQUEFIED NATURAL GAS is payable by the following persons: If the goods is: For local sale – the taxpayer is the FIRST BUYER or ASSIGNEE For export sale – The OWNER, CONCENSSIONAIRE or OPERATOR OF THE MINING CLAIM 2. Removal without payment If goods are removed in the their place of production without payment of the excise tax, the owner or the person having possession thereof shall be liable to the tax. TAX COMPLIANCE REQUIREMENTS Who are the persons liable to excise tax? 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 goods 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 TAX COMPLIANCE REQUIREMENTS 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. Exception rule: Mineral or mineral products The excise tax on locally 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. TAX COMPLIANCE REQUIREMENTS When to file and Pay Excise Tax? 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 excisable products that is Domestically produced Imported Who is the taxpayer? - General rule Producer Importer When to pay? - General rule Before removal from Before removal from production Customs EXCISE TAX-FREE IMPORTATION BY EXEMPT PERSONS The importation of products into tax and duty-free shops, Freeport zones, 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. INTRODUCTION OF TAX-FREE ARTICLES INTO THE CUSTOMS TERRITORY Introduction into the customs territory refers to the sale or transfer 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.  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: 1. Tax refund or 2. Tax credit Exception: Mineral Products The excise tax on mineral products, except coal and coke shall not be creditrable 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 A. EXCISE TAX ON ALCOHOL PRODUCTS Alcohol Products Excise Tax Rates for 2019* Distilled spirits Per proof liter P23.40 NRP 20% Sparkling wines/ Champagnes NRP per 750ml bottle: P500 or 316.33 less More than 500 885.73 Still wines and carbonated wines 14% alcohol by volume or less 37.96/L More than 14% but not more 75.92/L than 25% Fermented liquors If brewed and sold at pub and 35.43/L restaurants Others 25.42/L *the specific tax rates are subject to 4% annual adjustment every January 1 of each year Net Retail Price Net Retail Price shall mean the price at which the distilled spirits is sold on retail in atleast 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 super markets in the region Proof Liter means a liter of proof spirits. A proof means 50% of alcohol content. Thus 70 proof means 70/2 or 35% alcohol content. Distilled Spirits the substance known as ethyl alcohol, ethanol or spirits of wine, including dilutions, purifications 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 20% of the NRP, excluding the value added tax and excise tax. The specific tax per proof liter is subject to 4% adjustment every year. Wines normally have carbon dioxide on them due to fermentation process. Carvon Dioxide 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 Carbon Dioxide removed 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 Fortified Wines mean natural wines to which distilled spirits are added to increase their alcohol strength. Fortified wines containing more than 25% of alcohol shall be taxed as distilled spirits. Fortified wines means natural wines to which distilled spirits are added to increase their alcohol strength. Fermented Liquors includes beer, lager beer, ale, porter and similar products except tuba, basi, tapuy and similar products. Conditional Tax-Free Removal of Alcohol Products 1. 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  B. EXCISE TAX ON TOBACCO PRODUCTS Tobacco Products Tax Rates Tobacco twisted by hand or reduced into a P2.20/kg as of January 1, 2019 condition to be consumed in any manner other than the ordinary mode of drying and cutting Tobacco prepared or partially prepared with or without the use of any machine or instruments or without being pressed or sweetened Fine-cut shorts and refuse, scrips, clippings, cuttings, stems and sweepings of tobacco On tobacco specially prepared for chewing so as to P1.89/kg as of January 1,2019 * be unsuitable for use in any other manner *subject to 4% yearly increase thereafter B. EXCISE TAX ON TOBACCO PRODUCTS Cigars, per cigar -ad valorem tax 20% on net retail price -specific tax 6.32/cigar as of January 1, 2019* Cigarettes, per pack Packed by hand Packed by machine July 1, 2018 to Dec 31, 2019 P35/pack P35/pack Jan 1, 2020 to Dec 31, 2021 P37.50/pack P37.50/pack Jan 1, 2022 to Dec 31, 2023 P40/pack P40/pack *subject to 4% yearly increase thereafter starting January 1, 2024  C. EXCISE TAX ON PETROLEUM PRODUCTS Petroleum Product Tax Rate Unit of Measure 2019 2020 Lubricating oils and greases including but not limited P9.00 P10.00 Liter & kilogram to basestocks for lube oils and greases, and additives Processed gas 9.00 10.00 Liter of volume Waxes and Petroleum 9.00 10.00 Kilogram Denatured alcohol for motive power 9.00 10.00 Liter of volume Naptha, regular gasoline, pyrolysis gasoline and 9.00 10.00 Liter of volume other similar products of distillation -if used as raw materials in the production of 0.00 0.00 petrochemicals or as a replacement fuels for power plants C. EXCISE TAX ON PETROLEUM PRODUCTS Petroleum Product Tax Rate Unit of measure 2019 2020 Unleaded Gasoline 9.00 10.00 Liter of volume Aviation turbo jet and aviation gas 4.00 4.00 Liter of volume Kerosene 4.00 5.00 Liter of volume Diesel fuel oil and similar fuel oils 4.50 6.00 Liter of volume Liquefied petroleum gas * 2.00 3.00 Kilogram -if used for motive power Tax as diesel oil -if used for production of petrochemical products 0.00 0.00 Asphalts 9.00 10.00 Kilogram 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 generation 0.00 0.00 facilities Petroleum products to be used as raw materials Petroleum products used as raw materials in the manufacture of otter petroleum products or as fuel for power plants are not taxable. 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 Creditable Excise Tax Excise tax paid on the purchase of basestock (bunker) in the manufacture of excisable articles forming part thereof shall be credited against the excise tax due thereon. Any excess tax paid on raw materials resulting from the manufacturing, blending, processing, storage and handling losses shall not give rise to a tax refund or credit Used in production or Used as replacement fuels processing of products for power plants subject to excise tax Naptha, gasoline and other Exempt Exempt similar products Liquefied petroleum gas Exempt Exempt Petroleum coke --- Exempt Bunker Fuel Taxable but creditable --- Mandatory marking of all petroleum products Imported or locally manufactured petroleum 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 - Random Field test - Confirmatory Test Sale of Petroleum Products to exempt entities Petroleum products sold to the following are exempt from excise tax: 1. International Carriers 2. Entities exempted under tax triaties, conditional on reciprocal tax exemption treatment 3. Entities which are exempt from direct and indirect tax D. EXCISE TAX MINERALS Mineral Product Domestically produced Imported Coal and Coke P50/MT effective Jan 1, 2018 P100/MT effective Jan 1, 2019 P150/MT effective Jan 1, 2020 Non-metallic minerals and 4% 4% quarry resources Copper, gold, chromite and 4% 4% other metallic minerals Indigenous Petroleum 6% Natural gas and liquefied Exempt natural gas Indigenous Petroleum include locally extracted mineral oil, hydrocarbon gas, bitumen, crude asphalt, mineral gas and all other similar or naturally associated substances with the exception of coal, peat, bituminous shale and/or stratified mineral deposits Minerals all naturally occurring inorganic substances wheter solid, liquid, gaseous or any intermediate state. Mineral Products 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. Quarry Resources 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 ciders, basalt, tuff and 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. Ad Valorem tax on Mineral Products 1. Excise tax on metallic and non-metallic minerals. if domestically produced- based on actual market value of the gross output upon removal if imported-based on value used by the BOC in determining the tariff and customs duties, net of excise tax and VAT 2. Excise Tax on indigenous petroleum based on the fair international market price on the first taxable sale, barter or exchange Small Scale Miners RA 11256 exempts registered small scale miners and accredited traders who are selling gold to Bangko Sentral ng Pilipinas from paying income tax and excise tax. Import of minerals Exceptionally subject to excise tax upon the basis used by the Bureau of Customs in computing customs duties  E. EXCISE TAX ON MISCELLANEOUS ARTICLES 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 and special purpose vehicles shall not be considered automobiles Ad Valorem tax on manufactured or imported automobiles Manufacturer’s or importer’s selling price* Tax Rate Up to P600,000.00 4% P600,000.00 to P1,000,000.00 10% P1,000,000.00 to P4,000,000.00 20% Over P4,000,000.00 50% *net of excise tax and VAT Exception to the excise tax rates 1. Hybrid Vehicles shall be subject to 50% of the applicable excise tax 2. Purely electric vehicles and shall be exempt on excise tax on automobiles 3. Pick-ups Net Manufacturer’s or Importer’s selling price 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 or in their sales invoice, whichever is higher.  Minimum Prices The net manufacturer’s or importer’s selling price shall include the value of air conditioning unit, radio and mag wheels including the installation cost thereof whether or not the same is actually installed in the automobile. The net manufacturer’s selling price shall not be less than: 1. 80% x (suggested retail price – excise tax- VAT) and 2. 110% x (Cost of manufacture or import + selling expenses) Imported Vehicle not for sale Shall be subject to the excise tax on the total landed value, including transaction value, customs duty and all other charges. 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 subject to excise tax at the higher of the consideration paid and depreciated cost A 10% depreciation expense shall be provided but not in excess of 50% of the original cost or value  Tax Exempt Removals of Automobiles 1. Removal of Export No excise tax shall be imposed on vehicles removed for export, subject to the following conditions: a. Permit to Export b. Direct delivery to vessel c. Proof of exportation d. Exporter’s bond 2. Delivery of tax-exempt persons or entites Tax-exempt persons or entities include: a. Embassies of foreign government, subject to the principle of reciprocity b. tax-exempt organizations, such as the ADB and IRRI c. 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 Tax Exempt Removals of Automobiles 3. Removals for delivery and exclusively within the Freeport zone Directly imported into the legislated Freeport zones from abroad or purchased from establishments located within the customs territory for use exclusively within the Freeport zone shall be exempt from the imposition of the excise tax 4. 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. E. EXCISE TAX ON MISCELLANEOUS ARTICLES Non-Essential Goods A 20% ad valorem tax is imposed upon the following non-essential goods: 1. Jewelry 2. Perfume and toilet waters 3. Yatchs and other vessels intended for pleasure or sports The following are not jewelry and hence exempt: 1. Surgical and dental instruments 2. Silver-plated wares 3. Frame or mountings for spectacles or eyeglasses 4. Dental golds or gold alloys and other precious metals used in filling, mounting or fitting of the teeth E. EXCISE TAX ON MISCELLANEOUS ARTICLES Non-Essential Services 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 function of the body or prevent or treat illness or disease.  E. EXCISE TAX ON MISCELLANEOUS ARTICLES Sweetened Beverages Refers to non-alcoholic beverages of any constitution that are pre-packed and sealed in accordance with the FDA standards, that contain caloric and non-caloric sweeteners added by the manufacturers. Includes: Sweetened juice drinks Energy and sports drinks Sweetened tea Flavored water All carbonated beverages Cereal and grain beverages Other powdered drinks not classified as Other non-alcoholic beverages that milk, juice, tea and coffee contain sugar  E. EXCISE TAX ON MISCELLANEOUS ARTICLES Sweetened Beverages Product Description Tax Rate (per liter) Using purely caloric sweeteners, and purely non-caloric P6.00 sweeteners or a mix of them Using purely high fructose corn syrup or in combination P12.00 with any caloric or non-caloric sweetener Using purely coconut sap sugar and purely steviol Exempt glycosides Exempt Products from Excise Tax The following shall not be subject to the excise tax on sweetened beverages: 1. All milk products 2. Soymilk and flavoured soymilk 3. 100% natural fruit juices 4. 100% natural vegetable fruit juices 5. Meal replacement and medically indicated beverages 6. Ground coffee, instant soluble coffee, and pre-packed powdered coffee products 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. Transfer of semi-processed goods considered as finished goods subject to excise tax. Beverages 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 2. Surety bond 3. Direct transport and loading to the international shipping vessel or carrier for direct shipment abroad 4. Proof of exportation 5. Marking of the primary container with “Exported from the Philippines” Reference Business and Transfer Taxation 2019 edition by Rex Banggawan