The Department of Finance (DOF) has directed the Bureau of Internal Revenue (BIR) to determine whether beverage manufacturers are paying the correct amount and type of tax as mandated under the Tax Reform for Acceleration and Inclusion (TRAIN) Law after uncovering possible discrepancies in their tax payments, which left a P10 billion shortfall in the excise tax collection target for the first 10 months of the year.
Finance Undersecretary Karl Kendrick Chua said the excise tax collection target on sugar-sweetened beverages (SSB) as of October 2018 was set at P40 billion, but the BIR has so far collected only around P30 billion, possibly because SSB manufacturers might not be paying the correct taxes.
Despite the shortfall, Finance Secretary Carlos Dominguez III noted that the SSB tax has significantly contributed to the state coffers, bringing in an additional P100 million a day in revenues, or about P3 billion a month. Around P100 million a day was the operational target set by the DOF for the collection of the SSB tax.
The TRAIN Law mandates a P6-per-liter excise tax on beverages using caloric and non-caloric sweeteners and P12 per liter on beverages using high-fructose corn syrup (HFCS). Milk and 3-in-1 coffee mixes are exempted from this tax.
“My hunch is that those that are supposed to pay the P12 tax are only paying P6,” Chua said during a recent DOF Executive Committee (Execom) meeting.
Citing data from the Department of Health (DOH) and the Food and Drug Administration (FDA), Chua reported to Dominguez that as of October, only one company, Coca-Cola, has secured an FDA approval to convert its sweetener from HFCS to sugar or other caloric or non-caloric sweeteners, which is charged a lower tax of P6 per liter.
Other companies that have been determined to be using HFCS as beverage sweeteners still have to apply for FDA approval, which is a requirement before they could shift to caloric or non-caloric sweeteners with the lower tax rate of 6 pesos, Chua said.
“The FDA approved only the conversion for Coke, and that was just last August. So I think many are paying P6 when they should be paying P12. That is our concern. I suggest that the BIR conduct an audit (on these companies),” Chua said during the Execom meeting. “They cannot just change the content per the FDA.”
BIR Deputy Commissioner Arnel Guballa said at the Execom meeting that the bureau has already started checking the tax payments of beverage manufacturers and sending deficiency assessments to correct the SSB tax discrepancies.
Excise tax collections on SSBs from large taxpayers amounted to P29.74 billion for the first 10 months of 2018, while another P184.4 million was collected from other SSB taxpayers, for a total of P29.92 billion.
The BIR collected a total of P7.70 billion in SSB excise taxes in the 1stquarter of the year, P9.95 billion in the second quarter, P8.64 billion in the 3rd quarter, and P3.63 billion in October.