March 20, 2015
Visayan Daily Star by Modesto Saonoy | http://goo.gl/4ARQpt
The conflict between the Bureau of Internal Revenue and the sugar producers – millers and planters – is getting serious as the BIR presses hard on the producers on the value added tax on sugar. The problem that arose from the advance withholding tax has deteriorated so that the BIR, through the Department of Finance, has a new definition of what raw sugar means.
When I wrote that the language used by the militant small farmers was counterproductive as the BIR was set to collect has, indeed backfired. The refusal of DoF Secretary Cesar Purisima to meet them indicated he is not willing to give way. While BIR Commissioner Kin Henares appeared to listen, she was not intent in acceding to the demands of producers, small or otherwise.
Earlier the planters cited the case they filed in Cadiz City against the collection of the EVAT but the judge retired without issuing a decision so that the BIR was not restricted in its collection. Sans a court order, the BIR has no choice but to collect. Still the sugar producers contended that raw sugar is exempt from paying the EVAT.
A friend wrote that according to the law, sugar polarizing below 99.5 is considered raw sugar and since the sugar that comes out of the sugar mills has this polarization, then it is raw sugar and therefore exempt from tax. The law also added a qualifier that it remains exempt from VAT, even when it has undergone an additional simple process of drying. This is also the position of the planters in their press release that came out yesterday.
The new BIR regulation, however, redefined what raw sugar is. In its Revenue Regulation 4-2015 dated March 13, DoF Secretary Purisima, on recommendation of Henares, made a clear and surprising definition of what the term “raw sugar” means for taxation purposes, specifically the VAT. The definition is surprising because it deviates from the common understanding of raw sugar.
As a friend commented, what the BIR is trying to do is “doctor” the term and “giving the qualifier another meaning.”
According to the new regulation, raw sugar has the same polarization of 99.5 in dry weight. However, BIR made a distinction between “raw cane sugar” and “raw sugar”.
Raw cane “sugar refers to sugar produced by simple process of conversion of sugarcane without need of any mechanical or similar device as muscovado”. On the other hand, “the centrifugal process of sugar is not in itself a simple process. Therefore any type of sugar produced therefore is not exempt from VAT such as raw sugar or refined sugar.” There are therefore two kinds of raw sugar contrary to common understanding. Now there is raw cane sugar and raw sugar.
Literally, the distinction is clear enough but a drastic departure from common belief. Thus for the BIR all sugar produced by sugar mills are subject to tax since they are all centrifugal mills. This is the reason BIR is adamant in collecting.
A sugar producer said “the fact is, this qualifier is added only to expand the scope of VAT coverage.” Of course it also limits the VAT exemption.
The published contrary opinion claims “raw sugar is a finished product only after centrifuging. Otherwise without centrifuging, what you have is called massecuite, not raw sugar. Right there and then, raw sugar cannot be said to have undergone any additional process.” In muscovado production, the centrifuge process is done by hand using a paddle or spade.
The second contrary opinion is that, “if at all, the operative word in question is ‘simple process’ that never refers to simple equipment. But the Department of Finance/BIR now wants to improve their position by including definitions of equipments. It is very clear. The BIR is changing the law.” Indeed, BIR is restricting the meaning of the term “raw sugar” that provides it with a basis to collect.
Since there is conflicting opinion as to what is meant by “raw sugar” in the law, the best option is that of Governor Alfredo Marañon – go to court. The other is for Congress to make clear this distinction and leave no doubt as to what is meant by the term. We have lived for long with the idea of how the planters understood the term. By focusing on the process, the BIR changed the meaning.
This new definitions caught the producers unexpectedly. The tax was not included as cost to production. Is there relief? For the moment producers have no respite until the court intervenes.*