January 11, 2016
Butch Fernandez (Business Mirror) | http://goo.gl/piofqx
The Senate has approved on third and final reading a bill which seeks to clarify the definition of “raw sugar” and exempt it again from the 12-percent value-added tax (VAT) collected by the Bureau of Internal Revenue (BIR).
Senate Bill (SB) 2987, which was authored by Sen. Sergio R. Osmeña III, will amend Section 109 (A) of the National Revenue Code and provide the criterion to be adopted to define raw sugar as accepted and recognized by the World Customs Organization and the Codex Alimentarius, or the Food Code.
Osmeña noted that, while raw cane sugar has been tax exempt since 1987 under the original, amended and reformed VAT laws, “the BIR has issued several regulations that veered away from the definition of raw sugar or raw cane sugar, and effectively removed the VAT exemption of this vital
agricultural product.”
He said the BIR has also issued several revenue regulations that provided various definitions of raw sugar and raw cane sugar which were intended to remove the VAT exemption of the commodity.
“It would be for the best interest of our entire economy if a single criterion be adopted in defining the basic commodity. This will make our law at par with international standards [because] raw cane sugar cannot be different in this country as in the rest of
the world,” he said.
“Besides, VAT exemptions have been granted by Congress and even recognized by the Supreme Court, to the agricultural sector precisely to encourage agricultural production and to prevent the rise in cost of basic food,” Osmeña added.
He said the BIR regulations imposing VAT on raw sugar or raw cane sugar has slashed the net incomes of small sugar farmers, or those who have only 5 hectares of land and below, and who comprise 76 percent of the total sugar farmers in the country. These rules, he said, also affected about 700,000
individuals engaged in sugar production.
Osmeña, who is chairman of the Senate Subcommittee on Ways and Means on the VAT Exemption for Raw Sugar, said the government can recover the estimated P1.4 billion in foregone revenues if raw sugar is reexempted from the VAT.
“The BIR can easily recapture the VAT down the line for that is the way that this elegant tax works. In fact, the grant of this tax exemption will create a multiplier effect that will ultimately redound to the benefit of our country,” he said.
Last year the BIR issued Revenue Regulations 8-2015 which defined the types of raw cane sugar to be exempt from the 12-percent VAT. The bureau said only raw cane sugar or muscovado sugar is exempt from the VAT.
BIR Commissioner Kim Jacinto-Henares issued Revenue Regulations (RR) 4-2015, which provided a definition for raw cane sugar as used in Section 109 of the Tax Code. Section 109 enumerated the transactions exempted from VAT.
Under RR 4-2015, raw cane sugar is defined as sugar produced by simple process of conversion of sugarcane without need of any mechanical or similar device.
“For this purpose, raw cane sugar refers only to muscovado sugar. Thus, only muscovado is exempt from VAT under Section 109 [1] [A] of the Tax Code,” it read.
“Centrifugal process of producing sugar is not in itself a simple process. Therefore, any type of sugar produced therefrom are not exempt from VAT, such as raw sugar and refined sugar,” the BIR said.