January 13, 2016
Mary Grace Padin (Business Mirror) | http://goo.gl/ZmggpP
Local millers are asking law-makers to make sure the definition of raw sugar and raw cane sugar in a new law they are crafting will not lead to “misinterpretation” by the Bureau of Internal Revenue (BIR), and trigger the imposition of competitiveness-eroding value-added tax (VAT) on these products.
Philippine Sugar Millers Association (PSMA) President Francisco D. Varua told the BusinessMirror that right now, the technical definition of raw sugar and raw cane sugar in Senate Bill (SB) 2987 is prone to misinterpretation.
“The definition of the Senate version is that raw sugar has a polarity of 99.5 degrees and below. And then, they came up with another statement that raw cane sugar is based on a simple process. That’s correct, too; but that could also lead to another misinterpretation later on the part of the BIR,” Varua said in a phone interview. SB 2987, which has been approved recently by the Senate, seeks to amend Section 109 (A) of the National Internal Revenue Code (NIRC) and provides the criteria to be adopted to define raw sugar as accepted and recognized by the World Customs Organization and the Codex Alimentarius, or the Food Code.
The bill also exempts raw sugar from the 12-percent VAT as imposed by the BIR.
Under SB 2987, the term raw sugar means sugar “whose content of sucrose by weight in the dry state corresponds to a polarimeter reading of less than 99.5 degrees, and the term raw cane sugar refers to partially purified sucrose, which is crystallized from partially purified cane juice, without further purification, but which does not preclude centrifugation or drying, and which is characterized by sucrose crystals covered with a film of cane molasses.” However, Varua clarified that raw sugar and raw cane sugar should be defined as “one and the same.”
The PSMA, he said, is proposing that the Senate adopt the House version of the technical definition of raw sugar and raw cane sugar.
“We propose that [the Senate] should follow the definition done by the House of Representatives—raw sugar and raw cane sugar is one and the same, and it has a polarization of 99.5 degrees and below. The definition should simply be based on polarization rather than on any other issues to simplify everything,” Varua said.
House Bill 5713 states that “Raw cane sugar shall mean raw sugar whose content of sucrose by weight in the dry state corresponds to a polarimeter reading of less than 99.5 degrees, such that but not limited to blanco directo, premium raw, special raw, washed sugar, sweeping and muscovado.”
Ma. Regina Bautista-Martin, administrator of the Sugar Regulatory Administration (SRA), said in a text message the bill is the response of the Senate and the House to the clamor of sugar farmers across the country to “uphold the long-standing legislative intent that raw cane sugar and raw sugar refer to one and the same agricultural product, which is exempt from VAT.”
Sen. Sergio Osmeña III, who authored the bill, said raw cane sugar has been tax exempt since 1987 under the original, amended and reformed VAT laws.
However, he added that the BIR has issued several regulation that veered away from the definition of raw sugar or raw cane sugar, and effectively removed the VAT exemption of the agricultural product.
Varua said upon the release of the provisions of the BIR, the PSMA has filed cases in court to prevent the BIR from imposing the 12-percent VAT, while government officials are settling the issues on the definition of raw sugar.
Should the sugar industry have allowed the BIR to impose the VAT on raw sugar, Varua said it could have affected the local production of the commodity.
“What is happening is that the sugar is becoming globalized already, and if we are going to impose such a VAT on sugar, we are going to diminish the competitiveness of the local sugar industry,” he said. He added that the additional tax could force sugar farmers, particularly small-holder farmers and land reform beneficiaries with less than 5 hectares, to shift to other commodities.
“If you are going to impose the tax, [small-holder farmers] will be out of the business. It will diminish their income, they will not become competitive and they will look for other agricultural crops that will be beneficial to them,” he said. Martin agreed, saying “it will lower the income of the farmers, which would eventually affect production. That could also cause prices to go higher.”
Martin also noted that, while the Philippines still imposes 5-percent tariff on sugar originating from Asean, the 12-percent VAT will certainly affect the domestic industry’s competitiveness in the region.
“We have the Sugar Industry Development Act [Sida]. There is a fund provided under the Sida to help the industry. Different government agencies are also given funds for modernization mechanization, and improvement of research facilities and state universities for the improvement of production. If you impose the 12-percent VAT, then the assistance you are giving them would become wasted. They [sugar farmers] will have difficulty in their efficiency,” Martin emphasized.
Data showed that the industry produced 15,823,220 50 kg bags of sugar from September 1, 2015 to January 3, 2016. This production translates to P28.94 billion in sales based on the 2015 average wholesale price of P1,829. This means that the BIR could collect P3.47 billion in VAT from this five-month output alone.