Letter of Instructions No. 1352

 
 

 

TO

:

The Minister of Finance

 

 

The Minister of Energy
The Chairman, Monetary Board, Central Bank

 

 

The Chairman, Board of Investments
The Director-General, National Economic and Development Authority
The Chairman, Board of Energy
The Commissioner of Internal Revenue
The Commissioner of Customs
All Other Parties Concerned

 

WHEREAS, the three (3) oil companies operating in the country have a total unutilized capacity of 95,000 barrels per day, which will increase as projected local demand for petroleum products declines;

 

WHEREAS, said duly unutilized capacity can be used to process third party foreign crude oil under processing agreements/contracts with owners of said oil;

 

WHEREAS, said unutilized capacity can also be used by the local oil companies processing additional volumes of their own imported crude to meet specific export requirements in the region where the Philippines has logistic advantage over the export  refineries;

 

WHEREAS, said processing of additional as well as foreign-owned crude oil will be beneficial to the national economy because it will improve our foreign exchange reserves, generate revenue, allow correction of demand imbalance in petroleum products and enhance our capability as an important trade center; but, our refineries will not be competitive with those of other countries unless adequate tax incentives, under existing laws are granted:

 

NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines, do hereby direct the following:

 

(1)      Any foreign entity/third party offshore may bring into the Philippines crude oil, over which it shall retain ownership to be processed by local oil company under a processing agreement, in consideration for a processing fee payable in foreign currency, into refined petroleum products which the foreign entity/affiliate shall ship out of the Philippines.

 

Local oil companies may process additional volumes of their own imported crude to exploit export opportunities for petroleum products as they occur.

 

(2)      No taxes, duties and other imposts, charges or fees shall be due and collected under the following arrangements:

 

(a)      The Bureau of Customs shall expedite the establishment by the local oil companies of customs bonded manufacturing warehouses to allow entry of crude oil for export processing, without payment of customs duties and other imposts, charges and fees.

 

Crude oil brought into the country by a foreign entity for export processing shall be covered by the usual bill of lading.  When loaded or commingled on the same carrier with crude oil to be refined for local consumption, the crude oil for export processing shall be covered by separate documents.

 

The Bureau of Customs shall grant duty drawback to the oil companies for duties and other imposts, fees and charges paid on imported lead, chemicals and other additives needed for export processing.

 

The Bureaus of Customs shall likewise grant duty-drawback on crude lead and chemical additives in the case of products exported out of own imported crude by the local oil companies.

 

Since the installation of separate facilities for export processing is not financially feasible, commingling of crude oil for export processing and for local consumption and for exports shall be allowed, without prejudice to the collection of all taxes, duties, fees and other charges on petroleum products that are actually not exported.

 

(b)      The Central Bank shall exempt the entry of crude oil, for export processing, from the provisions of all its existing orders requiring the issuance of a Central Bank Release Certificate.

 

(c)      The Board of Energy shall issue an appropriate resolution declaring that all petroleum products exported under this Letter of Instructions shall be free from the payment of levies imposed by the Board of Energy on refined petroleum products.

 

The Board of Energy shall, in the same resolution, also authorize the exemption from the payment of the BOE fee on the entry of crude oil for export processing.

 

(d)      The Philippine Ports Authority shall issue an appropriate order for the collection of P 2.00 per metric ton as wharfage fees and transshipment charges on the entry of crude oil; and, exempting the oil refined therefrom in the payment of such fees and charges upon exportation.

 

(e)      The fuel used for the refining process of the oil to be exported, if taken from the foreign or imported crude oil, shall be free from the payment of duty and specific taxes.

 

(3)      The processing fee to be paid by the foreign crude oil owner shall be subjected to the payment of the 3% contractors tax imposed by Section 205 of the National Internal Revenue Code.

 

(4)      The selling price of the refined oil exported by the local company shall in no case, be lower than the cost of their imported and plus an assumed processing fee equal to what would have been paid if the same was processed out of foreign-owned crude under a processing agreement.

 

(5)      In the event of local supply shortage of certain petroleum products, which can be met by supply intended for export, foreign entity/affiliate may, on a case to case basis, negotiate for the local sale thereof.  In such event, all taxes, duties, fees and other charges on the sale of such products shall be paid and for income tax purposes, the foreign entity shall be considered as a foreign corporation not engaged in trade or business in the Philippines under Section 24 (b) of the Tax Code.

 

(6)      The Ministry of Finance, in coordination with the Ministry of Energy, shall issue the appropriate rules and regulations to implement the provisions of this Letter of Instructions.

 

Done in the City of Manila, this 8th day of September of 1983.

 

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