Excise tax on sweetened beverages (SBs) is one of the new taxes imposed under Republic Act (RA) 10963 or Tax Reform for Acceleration and Inclusion (TRAIN) Law which took effect last Jan. 1. The Department of Finance (DOF) along with Department of Health (DOH) support this as part of a comprehensive health measure to curb the consumption of SBs and address the worsening number of diabetes and obesity cases in the country, while raising revenue for complementary health programs that address these problems.
SBs, as defined under the TRAIN Law, are non-alcoholic beverages of any constitution (liquid, powder, or concentrated) that are pre-packaged and sealed in accordance with the Food and Drug Association (FDA) standards that contain caloric and/or non-caloric sweeteners added by the manufacturers. Simply, these are beverages that contain high level of certain sugars that are viewed to provide unnecessary or empty calories with little or no nutrition.
Unfortunately, the following drinks that we’ve come to love are now taxed under Section 47 of the TRAIN Law: sweetened juice drinks and tea; all carbonated beverages (e.g. soft drinks, etc.); flavored water; energy and sports drinks; cereal and grain beverages; other powdered drinks not classified as milk, juice, tea and coffee; and other non-alcoholic beverages that contain added sugar.
On a positive note, products that use purely coconut sap sugar and purely steviol glycosides (stevia leaves extract) are exempt from the excise tax on SB. The law also excludes from the scope of excise tax all milk products, 100 percent natural fruit and vegetable juices that do not have added sugar or caloric sweetener, meal replacement and medically indicated beverages, and ground, instant soluble and pre-packaged powdered coffees (including 3-in-1).
Now, let’s take a look at its effect on prices. SBs are to be levied at P6 or P12 per liter of volume capacity depending on the type of added sweetener. SBs using purely caloric sweeteners, purely non-caloric sweeteners or mix of both are subject to P6 excise tax per liter of volume of capacity. On the other hand, P12 per liter of volume capacity shall be imposed on SBs using purely high fructose corn syrup (HFCS) or in combination with caloric or non-caloric sweetener.
Who, when and how to pay for the excise tax?
Excise taxes are imposed on manufacturers, importers or persons in possession of the sweetened beverages before its withdrawal from the place of manufacture.
Revenue Memorandum Circular (RMC) 4-2018 provides transition procedures pending the availability of the enhanced excise tax forms in the electronic filing and payment system (eFPS). The said RMC introduced BIR Form 2200-S (Excise Tax Return for Sweetened Beverages). Electronic filers are advised to download the said form from the BIR website, fill it out, file and pay manually via over-the-counter of Authorized Agent Banks (AABs) under the jurisdiction of the concerned Revenue District Office (RDO) where the head office of the local sweetened beverage manufacturer is duly registered.
Other pertinent provisions
Section 47 (E), (F) and (G) of the TRAIN Law also mandates other government offices to ensure that the objective of the law will be properly implemented. Starting June 1, the FDA shall require all manufacturers and importers to properly indicate on the label the type of sweetener used; and for sweetened beverages in powder form, the equivalent of each serving per liter of volume capacity. Likewise, the FDA is also tasked to conduct post marketing surveillance of the sweetened beverages on display in supermarkets, groceries or retail stores, and/or to inspect manufacturing sites to determine compliance with the requirements of this section.
It shall be the duty of the commissioner of internal revenue to prescribe a materially unique, secure and non-removable identification, such as codes, stamps, or other markings, to be firmly and conspicuously affixed on and form part of the label of all excisable sweetened beverages. Every year, DOH, DOF, and Department of Science and Technology (DOST) shall review the impact of the provisions on its health objectives with the view of making recommendations on the tax rate on these beverages in the future.
What to expect?
Affected taxpayers, which are mostly the large beverage manufacturing companies, may have concerns regarding the administrative aspect of this section.
Beverage-manufacturing companies are directly affected by these SBs tax being imposed. Their manufacturing processes may be complex like in the case when there are subcontracting agreements for bottling with other entities. Please note that the point for the payment of excise tax would be before the date of release from the manufacturing facility. In this kind of scenario, the manufacturer will have to transfer the beverage to the facility of the bottler who is subcontracted to put the beverage in a closed container (i.e. bottles or cans). As it is, the question whether when it should be taxed, before transport to bottling facility or before the release of the finished product from the bottling factory, may arise.
Further, if SBs are to be exported, will it be taxable to this excise taxes? As a general rule, excise tax is applicable on goods manufactured or produced in the Philippines for domestic sale or consumption or for any other disposition, and on goods imported. Hence, SBs that are for exportation may be exempt from such excise tax. However, the BIR may still impose documentary and other requirements for the monitoring of these goods to be exported.
With these questions at hand, it is imperative for the BIR to expedite the issuance of the related revenue regulations. It is undeniable that the imposition of excise tax on sweetened beverages had opened different venues for argument, health and economic wise. Only time can judge whether it is a sweet success on the part of the government.
Donna Eliza Z. Leonardo is an associate from the tax group of KPMG R.G. Manabat & Co. (KPMG RGM&Co.), the Philippine member firm of KPMG International. KPMG RGM&Co. has been recognized as a Tier 1 tax practice, Tier 1 transfer pricing practice, Tier 1 leading tax transactional firm and the 2016 National Transfer Pricing Firm of the Year in the Philippines by the International Tax Review.
This article is for general information purposes only and should not be considered as professional advice to a specific issue or entity.