BIR backs 10% VAT on softdrinks

MANILA, Philippines - The Bureau of Internal Revenue (BIR) supports a proposal that seeks to impose a 10 percent ad valorem tax on soft drinks and other sweetened beverages in a bid to shore up government revenues.

BIR commissioner Kim Henares said the bill, once passed, would contribute P14 billion to state coffers.

“This proposal emanated from Congress not from the executive but we support it,” Henares said.

Henares, however, cited the need to impose other revenue-generating measures since the proposed additional tax on carbonated drinks would not be enough to compensate for the estimated P30 billion in foregone revenues from higher tax exemption on employee bonuses.

Both chambers of Congress approved on third and final reading their respective versions of the bill increasing the ceiling for tax exemption on bonuses for workers in the public and private sector to P82,000 from P30,000 at present.

The tax exemption covers all bonuses, including 13th month pay and Christmas bonus.

The measure is expected to be implemented next year as the government has yet to draft its implementing rules and regulations.

Congress is now eyeing other legislative measures that would offset losses from a higher tax exemption cap on bonuses. Among these are the imposition of additional tax on softdrinks and the rationalization of fiscal incentives.

Under House Bill 3365, revenues from the soft drink tax will be used for the government’s “rehabilitation fund” which will finance housing, road construction and other infrastructure projects for areas affected by natural calamities.

The softdrink industry, which employs over 25,000 people and 1.2 million entrepreneurs, is currently subject to 12 percent value added tax as well as withholding tax, local and real property taxes and customs duties.

The Beverage Industry Association of the Philippines has expressed strong opposition to the proposed measure, saying this would have a negative impact on the economy.

The beverage sector, which purchases 60 to 70 percent of the total produce of the local sugar industry, has invested P46 billion in the Philippine economy.

Finance Undersecretary Jeremias Paul said the Department of Finance is “prepared to join the technical working committee tasked to write a substitute bill to fine-tune the proposal.”

Apart from the additional revenues it would provide the government, the measure is also seen to curb the consumption of softdrinks as beverage makers pass on the tax cost to consumers.

The proposal is likewise seen to improve the diet and health of the population.

Manufacturers, however, said they have been taking steps to reduce the calorie content of their beverages over the past years. Overall, soft drinks contribute three percent of calories in the average diet.