Tax 3

Module 3

Excise Tax

Prepared by: Mrs. Nelia I. Tomas, CPA, LPT

BUSINESS AND TRANSFER TAXATION Laws Principles and Applications. 2019 Edition. Rex Banggawan
LEARNING OBJECTIVES
After completing the lesson, the students will be able to
 Understand the concept and nature of excise tax on certain goods and
services
 Differentiate excise tax from the other common business taxes
 Identify the common bases of excise tax on goods imported, produced
or sold
 Determine the list of certain goods or services subject to excise tax
 Explain the specific rules that applies to each type of excisable goods or
services
Excise Tax
Disclaimer: The excise tax to be discussed in this lesson are excise taxes imposed
on certain goods and services as opposed to excise tax imposed on privilege.

 A hybrid consumption tax with a regulatory overture, imposed only on certain

goods or services.
 As consumption tax, it normally applies when the goods are intended for domestic
consumption. Hence, applies to goods domestically produced or imported for
domestic use and exempts goods produced for export.
 In certain cases, the regulatory feature of excise tax that it disregards it
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 locally extracted mineral product is
subject to excise tax that even if they are for foreign consumption.
 Excise taxes 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 of sale.
Excise Tax
Timing of Excise Taxation
Taxable at the point of
Excisable article or 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
Excise Tax
Scope of Excise 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.

List of Excisable Articles and Services in the Philippines

1. Alcohol products
2. Tobacco products
3. Petroleum products
4. Mineral products – metallic and non-metallic minerals and quarry
resources
5. Miscellaneous articles – like automobile, jewelry, perfume, yacht and
sweetened beverages like soft drinks
6. Non-essential services – like cosmetic surgery
Nature of Philippine Excise Tax
A. Excise tax as a regulatory tax

1. Environmental tax – also known as the green tax; imposed on

products which causes harm to the environment when produced,
extracted or used.
2. Sumptuary tax – also known as vanity tax; imposed to restrain luxury
or extravagance.
3. Sin tax – also known as health tax; imposed on the consumption of
sin products or those known to pose health risk.

B. Excise tax as an indirect tax – It is levied upon producers or

importers with the understanding that he will pass-on the same to the
consumers.
Nature of Philippine Excise Tax
C. Excise tax as a consumption tax – It is a typical pre-consumption
tax; 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.

D. Excise tax as additional business tax – A business normally

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

E. Excise tax as specific and ad valorem tax – imposed in the

Philippines as primarily specific taxes but there are also ad valorem and
mixed of them.
Types of Excise Tax
1. 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 rate at a rate of 4% per
annum to preserve the regulatory potency of the tax from the gradual
decline in purchasing power of money over time.
Basis of Ad Valorem Tax
Locally produced goods
Subject to tax on gross selling price

What is gross selling price?

 Gross selling price means the price, excluding the VAT, at which the goods
are sold at wholesale in the place of production or through their sales agent
to the public.
 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 the price be less than the cost of manufacture plus expenses
incurred until the goods are finally sold, then proportionate margin of profit,
not less than 10% of such manufacturing costs and expenses, shall be
added to constitute the gross selling price.
Basis of Ad Valorem Tax
Locally produced goods

Manufacturer’s or producer’s sworn statement is required

Manufacturer’s or producer’s shall file with the 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
A manufacturer of excisable goods subject to 20% excisable tax, made the following
declaration in filing its excise tax return for goods produced:

Wholesale invoice price P8,500,000

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

Required: How much is the excise tax payable?

Illustration 1 - Solution
Production cost P 7,500,000
Cost to sell 1,500,000
Total costs P 9,000,000
Minimum margin (10% x 9M) 900,000
Tax base P 9,900,000
x excise tax rate 20%
Excise tax P 1,980,000

Tax is based on the total cost since it is higher than the wholesale price.
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.
Illustration 2
Clark Enterprise imported excisable goods subject to 10% excise tax and 20% custom
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

Required: How much is the excise tax due and custom duties?
Illustration 2 - Solution
Domestic wholesale price, net of VAT P 9,000,000
x excise tax rate 10%
Excise tax due P 900,000

Purchase price P 4,000,000

Other inland costs 1,000,000
Excise tax 900,000
Transaction value P 5,900,000
Multiply by: 20%
Customs duties P 1,180,000
Tax Compliance Requirements
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
services in the Philippines for domestic sale or consumption, and importers
of excisable goods.

Exception rule:
1. The excise tax on indigenous petroleum, natural gas or liquefied natural
gas is payable by the following person:
If the good is The taxpayer is
For local sale The first buyer or assignee
For export sale The owner, lessee, concessionaire or operator of the mining claim
Tax Compliance Requirements
Who are the persons liable to excise tax?
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.

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.
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.
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

It 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.
Illustration 3
ABC Company, an ecozone locator, imported and subsequently sold the following
excisable goods:
Portion sold within Portion sold outside
Value of import
the ecozone ecozone
Cigarrettes P 400,000 P 200,000 P 100,000
Wines 500,000 200,000 100,000
Automobiles 12,000,000 3,000,000 4,000,000

Required: Identify which products are subject to excise tax and which products are exempt.
Illustration 3 - Solution
Products subject to excise tax:
Sin products like Cigarettes, value of import P400,000, and Wines, value of import,
P500,000.

Product exempt from excise tax:

Automobiles, if exclusively used within ecozones.

Subsequent sales:
1. For sin products, subsequent sale within or outside of the ecozone shall be exempt
from excise tax.
2. For automobile, subsequent sale is exempt if sold within ecozone, but if sold outside
the ecozone, it is subject to excise tax since it is introduction to the custom’s territory.
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 must
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.

Exception: Mineral Products

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 Alcohol Products
Alcohol Products Excise tax rates for 2019*
Distilled spirits Per proof liter P23.40
NRP 20%

Sparling wines/ NRP per 750ml bottle; P500 or less 316.33

Champagnes More than P500 885.73
14% alcohol by volume or less 37.96/L
Still wines and carbonated wines
More than 14% but not more than 25% 75.92/L
Fermented Liquors If brewed and sold at pub and restaurants 35.43/L
Others 25.42/L
*The specific tax rates are subject to 4% annual adjustment every January 1 of each year.
NRP or Net Retail Price shall mean the price at which the distilled spirits is sold on retail in
at least 5 major supermarkets in Metro Manila; if 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.
Excise Tax on Alcohol Products
Distilled spirits
It 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 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.

Fermented Liquors
Includes beer, lager beer, ale, porter and similar products except tuba, basi,
tapuy and similar products.
Excise Tax on Alcohol Products
Wines
Normally have carbon dioxide on them due to fermentation process.

Sparkling wines have sugar and yeast on them which makes them bubbly due
to continuous fermentation even after bottling.

“Still” wines are wines with carbon dioxide removed.

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.
Illustration 4
Dol winery produces various wines packed in cases of 12 bottles. It produced the following
during a month in 2019:

Class Bottle SRP Total case produced

Champagne 750ml P 1,600 20 cases
Carbonated wine-50 proof 750ml 200 150 cases
Fortified wine-60 proof 1L 120 80 cases

Required: How much is the total excise tax?

Illustration 4 - Solution
Indicated NRP for Champaign:
Ultimate retail price P1,600.00
Divide by: VAT inclusive rate 112%
Selling price net of VAT P1,428.57
Less: Excise Tax 885.73
Indicated net retail price P 542.84

Champagne (20 cases x 12 bottles/case x 885.73) P 212,575.20

Carbonated wine (150 x 12 x 750/1000 x 75.92) 102,492.00
Fortified wine:
- Specific tax: (30% x 80 x 12) x P23.40 P 6,739.20
- Ad valorem: (P120 x 80 x 12) x 20% 23,040.00 29,779.20
Total excise tax P 344,846.40
Excise Tax on Alcohol Products
Conditional Tax-free Removal of Alcohol Products
 Denaturation of Alcohol or removal of wines and distilled spirits
for treatment of tobacco leaf

When wines and distilled spirits are to be used for the treatment of
tobacco leaf by manufacturers of cigars and cigarettes, this is not human
consumption; hence, tax free, but such wines and distilled spirits must first
suitable denatured.

Denatured alcohol of not less than 1800 proof (90% absolute alcohol)
when suitably denatured and rendered unfit for oral intake is exempt from
excise tax. Denatured alcohol used for motive power shall be taxed as
petroleum products.

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.
Excise Tax on Alcohol Products
Conditional Tax-free Removal of Alcohol Products
 Rectification of Spirits
• Spirits requiring rectification may be removed from the place of
production to another establishment for purposes of rectification
without repayment 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 taxes shall be liable for the payment
of the excise tax thereon.
Excise Tax on Alcohol Products
Conditional Tax-free Removal of Alcohol Products
 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 repayment of the tax under a permit
which shall be granted by the CIR.
Excise Tax on Alcohol Products
Conditional Tax-free Removal of Alcohol Products
 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 CIR, remove the same without the repayment 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 Tax on Tobacco Products
Tobacco Products Tax rates
 Tobacco twisted by hand or reduced into a 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 P2.20/kg as of January
use of any machine or instruments or without being pressed 1,2019*
or sweetened
 Fine-cut shorts and refuse, scrips, clippings, cuttings, stems
and sweeping of tobacco
 On tobacco specially prepared for chewing so as to be P1.89/kg as of January
unsuitable for use in any other manner 1, 2019*
*subject to 4% yearly increase thereafter
Excise Tax on Tobacco Products
Cigar and cigarettes
Cigars, per cigar Excise Tax
- 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

Cigars means all rolls of tobacco or any substitute thereof, wrapped in leaf tobacco.
Cigarettes 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.
Excise Tax on Tobacco Products
Tobacco inspection fee
Tobacco products Inspection fee rate
Cigars P0.50/thousand or fraction thereof
Cigarettes P0.10/thousand or fraction thereof
Leaf tobacco P0.02/kilogram or fraction thereof
Scraps and other manufactured tobacco P0.03/kilogram or fraction thereof
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 or 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 leaf tobacco.
 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 Tax on Petroleum Products
Tax rate
Petroleum Products Unit of measure
2019 2020
Lubricating oils and greases including but not limited to P 9.00 P 10.00 Liter & kilogram
base stocks 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 to be used for motive power 9.00 10.00 Liter of volume
Naphtha, regular gasoline, pyrolysis gasoline and other 9.00 10.00 Liter of volume
similar products of distillation
- If used as raw materials in the production of petroche 0.00 0.00
micals or as a replacement fuels for power plants
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
Excise Tax on Petroleum Products
Tax rate
Petroleum Products Unit of measure
2019 2020
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 of ton
- If used as feed stocks to power generation facilities 0.00 0.00

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.

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 5
Petrochem pumps crude oil from its oilfield and feed them to its oil refinery which transform
the crude oil into various petroleum products.

The following were produced by the plant from a batch of crude oil in 2019:
45,000 liters 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 liters Asphalt
1,200 liters Naphtha; 200 liters used in refining of petroleum products, 500 used in
producing plastic products; the balance is sold.

Required: How much is the excise tax payable?

Illustration 5 - Solution
Gasoline (P45,000 liters x P9/liter) P 405,000
Aviation gas (9,000 – 5,000) x P4/liter 12,000
Diesel fuel (25,000 liters x P4.5/liter*) 18,000
Bunker fuel (3,000 liters x P4.5/liter*) 13,500
Asphalt (5,000 kilos x P9/kilo*) 45,000
Naphtha (1,200 – 200 – 500) x P9* 4,500
Total P 498,000

*2019 rate
Creditable Excise Tax
The excise tax paid on the purchased basestock (bunker) in the
manufacture of excisable articles and forming part thereof shall be
credited against the excise tax due thereon. Any excess of excise taxes
paid on raw materials resulting from manufacturing, blending, processing,
storage and handling losses shall not give rise to a tax refund or credit.

Used in the production or Used as replacement

processing of products fuels for power plants
subject to excise tax
Naphtha, 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 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 markers 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 test will be periodically conducted in the warehouses, storage
tanks, gas stations and other retail outlets to inspect the quality and
quantity of fuel 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 on the field 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 treaties, conditional on reciprocal tax
exemption treatment
3. Entities which are exempt from direct and indirect tax
Excise Tax Minerals
Domestically Imported
produced
P50/MT effective Jan.1,2018
P100/MT effective Jan.1,2019
Coal and coke
P150/MT effective Jan.1,2020
Nonmetallic Minerals and Quarry Resources 4% 4%

Copper, gold, chromite and other metallic minerals 4% 4%

Indigenous petroleum 6%

Natural gas and liquefied natural gas Exempt

Excise Tax Minerals
Indigenous petroleum shall 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 shall mean all naturally occurring inorganic substances (found in nature) whether in
solid, liquid, gaseous or any intermediate state.

Mineral products shall mean things produced and prepared in a marketable state by simple
treatment processes such as washing or drying, but without undergoing any chemical change
or process or manufacturing by the lessee, concessionaire or owner of mineral lands.

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

Coke is a fuel with high carbon content derived form the anaerobic distillation of coal or oil. It
may also be formed from by natural geologic processes.
Excise Tax Minerals
Ad valorem tax on mineral products
 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 the value used by the Bureau of Customs in determining tariff and
customs duties, net of excise tax and VAT.

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 (including all expenses incurred to prepare the
said minerals or mineral products in a marketable state), as well as transporting, handling,
marketing or any other expenses.

 Excise tax on indigenous petroleum – Based on the fair international market price on
the first taxable sale, barter or exchange of such similar transaction or the transfer or
indigenous petroleum in its original state to a first taxable transferee.
Excise Tax Minerals
Small Scale Miners
 RA 11256 exempts registered small scale miners and accredited traders who
are selling gold to the Bangko Sentral ng Pilipinas (BSP) from paying income
tax, excise tax, and business tax.
 If the excise tax is 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 Internal
Revenue.
 All gold sold to the BSP by accredited traders shall be presumed to have been
purchased by said traders from small-scale miners.

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.
Illustration 6
During the month, a mining corporation mined a total of 500 tons of gold-copper
concentrates. The concentrates were assayed to contain 0.008% gold and 18% copper.
The company usually exports its concentrates.

The market value of the following in the London Metals Exchanges were:
Gold price $1,493/troy ounce
Copper $5,700/ton

Each troy ounce is 31.10348 grams. Each ton is 1,000,000 grams. The US Dollar is trading
P52/$1.

Required: How much is the excise tax due?

Illustration 6 - Solution
Gold:
Total concentrates in tons 500
Multiply by: Gold content .008%
Gold in tons 0.04
Multiply by: 1,000,000 grams/ton 1,000,000
Gold in grams 40,000
Multiply by: Gold price/grams ($1,492/31.10348) $ 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: 18%
Copper in tons 90
Multiply by: $/ton $ 5,700
Copper price in dollar $ 513,000
Multiply by: Peso-Dollar rate 52
Copper price in Peso 26,676,000
Market value of gross output P 126,516,000
Multiply by: Excise tax rate 4%
Excise tax P 5,060,640
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 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.
Excise Tax Miscellaneous Articles
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 to P1,000,000 10%
P1,000,000 to P4,000,000 20%
Over P4,000,000 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
Hybrid vehicle means a motor vehicle powered by electric energy, with or
without provision for charging in combination with gasoline, diesel or any other
motive power.
Excise Tax Miscellaneous Articles
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 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)
The suggested retail price shall not be less than the actual selling price of
the automobile when sold in the market.
Excise Tax Miscellaneous Articles
Imported vehicle not for sale
Imported vehicles 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 the depreciated cost.

A 10% depreciation expense shall be provided but not in excess of 50% of

the original cost or value.
Illustration 7
Hanjin, an ecozone locator, sold 2 company cars to Olongapo Company for
P900,000 each. Details about the two cars were as follows:
Car model Landed Costs Years in service
Mazda 2 P 1,400,000 4 years
Ford expedition P 3,000,000 6 years

Required: Compute for the following:

1. Presumptive import costs
2. Excise tax
3. VAT on importation
Illustration 7 - Solution
The presumptive import costs for purposes of the excise tax on the importation to be paid by Olongapo
shall be:
Minimum Selling Price Tax Basis
Mazda 2 (P1.4Mx60%) P 840,000 P 900,000 P 900,000
Ford exp. (P3M x 50%) 1,500,000 900,000 1,500,000

The excise tax shall be computed as follows:

Mazda 2 (P 900,000 x 10%) P 90,000
Ford Expedition (Pl.5M x 20%) 300,000
Total excise tax P 390,000

The VAT on importation to be paid by Olongapo shall be computed as follows:

Mazda 2 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 12%
VAT on importation P 334,800
Excise Tax Miscellaneous Articles
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

Removal for export

No excise tax shall be imposed on vehicles removed for export, subject to the following
conditions:
1. Permit to export — to be applied in writing from the CIR 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
Excise Tax Miscellaneous Articles
Delivery to tax-exempt 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 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 true copy of the purchase order indicating the description of the
automobiles to be purchased, the chassis and engine number; and the place and
location of the point of delivery.
5. The approval shall be on a per-transaction basis.
Excise Tax Miscellaneous Articles
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 CIR.

Removals for delivery and exclusively within the Freeport zone

Automobiles imparted directly 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.

Removal of automobiles 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-essential Goods
A 20% ad valorem tax as imposed upon the following non-essential goods:
1. Jewelry
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
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.

Examples of taxable invasive cosmetic procedures:

Chin Augmentation Eyelid Surgery
Mammoplasty Facelift / Necklift Vaginal plastic surgery
Breastlift Thread lift Auto grafting and otoplasty
Buccal fat removal Buttocks augmentation Rhinoplasty / Alar trimming
Embedded protein threads Hair restoration / Abdominoplasty or
transplantation Tummy Tuck
Non-essential Services
Examples of exempt non-invasive cosmetic procedures:
Acupuncture rejuvenation Non-surgical face lifting Dermal fillers (Cross-
therapy and skin tightening using linked and non-
radio frequency crosslinked
Air dissector Cleanings and facials Peelings (face and body)
Collagen induction therapy C02 fractional laser Injectable and weight
resurfacing management treatment
Botulinum toxin injection/ Laser and light treatment Body treatment and contouring
treatment procedures
Illustration 8
Dr. Becky 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 under bites 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.

Required: Compute for the Excise tax payable.

Illustration 8 - Solution
The excise tax shall be computed as:
Breastlift P 200,000
Liposuction 140,000
Total P 340,000
Multiply by: 5%
Excise tax P 17,000
Sweetened Beverages
Sweetened beverages (SBs) refers to non-alcoholic beverages of any
constitution (liquid, 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 juice drinks Energy and sports drinks
Sweetened tea Flavored water
All carbonated beverages Cereal and rain beverages
Other powdered drinks not classified as milk, juice, Other non-alcoholic beverages contain sugar
tea and coffee

Product description Tax rate (per liter)

Using purely caloric sweeteners, and purely non-caloric P 6.00
sweeteners or a mix of them
Using purely high fructose corn syrup or in combination with P 12.00
any caloric or non-caloric sweetener
Using purely coconut sap sugar and purely steviol glycosides Exempt
Illustration 9
Angca Cola Manufacturing Company is about to remove 100 cases of Super Cola using
HFCS and non-caloric sweeteners. Each case contains 6 bottles of 1.5 liters each.

Required: How much is the excise tax payable?

Illustration 9 - Solution
The excise tax shall be computed as:
Number of cases 100
Multiplied by: No. of bottles per case 6
Total bottles 600
Multiplied by Liter content per bottle 1.5L
Total volume in liters 900L
Multiplied by: Excise tax rate P 12.00
Total excise tax to be paid before removal P 10,800.00
Sweetened Beverages
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 milk ready-to-drink milk. flavored milk, and fermented milk.
2. Soymilk and flavored 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

Milk products refers to products obtained by processing of milk which may contain food
additives, and other ingredients functionally necessary for the processing.

Dairy products are not synonymous with milk products and hence taxable.
Sweetened Beverages
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.
Sweetened Beverages
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. 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'
Questions to Ponder
1. Enumerate excisable articles in the Philippines.
2. Discuss the nature of excise taxes.
3. Discuss the tax basis of ad valorem taxes.
4. Who will pay excise taxes? Discuss.
5. Discuss the venue of excise taxes.
6. Discuss the rules on tax-free importation by exempt persons.
7. Discuss the treatment of export of excisable goods.
8. What are considered automobiles for excise tax purposes?
9. What are considered sin products?
10. What are considered non-essential goods?
Required Readings and Other Learning Resources

1. Chapter 11, pp.368 – 404:

Banggawan, Rex B. 2019. BUSINESS AND TRANSFER TAXATION Laws Principles and
Applications. Real Excellence Publishing., Pasay Default Barangay, Pasay City, Philippines.

2. https://www.bir.gov.ph/index.php/tax-information/excise-tax.html

3. https://www.bir.gov.ph/index.php/tax-code.html
Learning Activities/Self-Tests

Chapter 11, pp.405 – 415:

Banggawan, Rex B. 2019. BUSINESS AND TRANSFER TAXATION Laws Principles and
Applications. Real Excellence Publishing., Pasay Default Barangay, Pasay City, Philippines.
 Appendix: Course Materials Evaluation
Adopted: BEST PRACTICES AND SAMPLE QUESTIONS FOR COURSE EVALUATION SURVEYS. Retrieved from
https://assessment.provost.wisc.edu/best-practices-and-sample-questions-for-courseevaluation-surveys//.