In addition to raising tax revenue, governments impose excise taxes to influence the buying behavior of consumers, for instance to discourage the purchase and use of certain goods and services that the government considers unhealthy or unnecessary.
The TRAIN Law increased the rates of excise taxes on petroleum products and automobiles, and introduced new excise taxes on cosmetic procedures and sweetened beverages.
Under the TRAIN Law, excisable sweetened beverages are non-alcoholic beverages of any constitution (liquid, powder or concentrates) that contain or use caloric sweeteners, non-caloric sweeteners and high fructose corn syrup. However, sweetened beverages using purely coconut sap sugar and steviol glycosides are exempt from this tax.
Compared with other national revenue taxes, excise taxes in general entail special administration and stricter monitoring from the finance department or tax bureau to ensure compliance and to prevent possible tax leakages. For the newly introduced sweetened beverage tax, the Bureau of Internal Revenue (BIR) issued Revenue Regulations No. 20-2018, prescribing the implementing rules and guidelines. Salient portions of the regulations are discussed in the following sections.
EXCISE TAX PAYMENT AND RETURN FILING
In accordance with Sections 130 and 131 of the Tax Code, the manufacturer and importer/owner are liable to pay excise tax. For locally-manufactured sweetened beverages, the excise tax return shall be filed for each place of production with the concerned Revenue District Office (RDO) and the tax due shall be paid before removal from the place of production.
For imported finished goods, the excise tax shall be paid before their release from customs custody. However, imported raw materials used for further production of the sweetened beverage shall be subject to excise tax before removal of the finished goods from the place of production. In either form, whether raw materials or finished goods, importers are required to apply for an Authority to Release Imported Goods (ATRIG) with the Excise LT Regulatory Division (ELTRD) of the BIR.
Revenue officers are deployed to check and supervise the production and removal of finished products from every unit of establishment producing excisable goods.
TRANSFERS OF RAW MATERIALS AND SEMI-PROCESSED GOODS
Every transfer or removal of raw materials for further processing, from the place of production to another registered production site or to a subcontractor like a toll manufacturing plant, shall be accompanied by an Excise Taxpayer’s Removal Declaration (ETRD). Raw materials that do not need further processing such as those for repacking only shall be subject to excise tax.
Semi-processed goods such as syrups or concentrates sold to fast food chains and mixed with carbonated water shall be considered finished goods subject to excise tax. The excise tax shall be based on a pre-determined formula in arriving at the equivalent yield in liters of volume capacity as approved by the Food and Drugs Administration (FDA).
REQUIREMENTS FOR MANUFACTURERS AND IMPORTERS/OWNERS
Manufacturers, importers/owners of excisable sweetened beverage as well as their subcontractors, such as toll manufacturers and bottlers, are required to secure a permit to operate from the ELTRD (even though the subcontractors are not subject to excise tax). Every permit shall be assigned a unique assessment number or code.
Manufacturers and importers are required to pay an initial surety bond amounting to P100,000. The surety bond for the succeeding years shall be based on the actual excise tax paid during the immediately preceding year.
Documents required to be submitted include location maps and plan of the warehouse and/or plant, and the approved certificate of product registration of every product or brand name duly-issued by the FDA.
For each brand and variant of the sweetened beverage, a separate application for permit shall be filed with the ELTRD prior to the production of the brand, with the following attachments:
1) Manufacturer’s/Importer’s Sworn Statement showing the products manufactured, volume of production, percentage of sweeteners used per product, brand names, kind of sweeteners used, applicable tax rates, etc.;
2) Exact replica of the proposed label as well as the ‘artwork’ of the secondary containers. On the face of the label and/or sides of the secondary containers, salient information shall be printed in an easily recognizable and readable manner, such as the name and address of the manufacturer (foreign manufacturer in the case of importers), assessment number, the type of sweetener used, etc.; and
3) If there are subcontractors, copies of the subcontracting agreement and the layout of the subcontractor’s production plant. Only the dedicated storage areas and production line as granted in the permit shall be used during the period of subcontracting.
Official Register Books (ORB) shall be kept and maintained within the place of production or warehouse and shall be made available for inspection by the BIR. Transcript sheets of the ORBs for each month’s operation shall be submitted to the BIR on or before the eighth day of the following month.
EXPORTED SWEETENED BEVERAGE ARE EXEMPT
Exports of sweetened beverages shall be exempt from the payment of excise tax provided that the exporter has secured a permit per shipment with the BIR office. Exporters shall also post a surety bond equal to the amount of excise tax otherwise due on the exported products. For continuing exports, taxpayers may post a continuing surety bond equivalent to the excise tax due on the estimated annual volume, or unliquidated export shipments, whichever is lower.
Proof of exportation such as Export Entry Declarations, commercial invoices, bills of lading, inward bank remittances, etc. must be submitted within 30 days from the date of exportation.
Aside from the regulations issued by the BIR, inputs from the FDA particularly on the classification of beverages, as well as on the monitoring of excisable products in the market, are key measures to enforce compliance from all taxpayers.
Considering that this is a new tax and the level of administrative burden of complying with the excise tax laws and implementing rules, I trust that the government will review this tax policy on sweetened beverage to assess the overall impact of the tax on the beverage industry and on the market, and perhaps more importantly, determine whether health targets were actually achieved.
The views or opinions expressed in this article are solely those of the author and do not necessarily represent those of Isla Lipana & Co. The content is for general information purposes only, and should not be used as a substitute for specific advice.
Reynaldo E. Maniego III is a manager at the Tax Services Department of Isla Lipana & Co., the Philippine member firm of the PwC network.
+63 (2) 845-2728