Tax bureau tightens rules on VAT exemption of sugar co-ops

THE BUREAU of Internal Revenue (BIR) has issued a new regulation that tightens rules on exempting cooperatives from paying the value-added tax (VAT) on the sale of refined sugar.

Revenue Regulations 13-2008, dated last September 19, clarified that withdrawal of refined sugar from mills by cooperatives that are not producers of the sugar cane are subject to the 12% VAT.

A cooperative is considered a sugar producer if "it is the tiller of the land it owns, or leases, incurs cost of agricultural costs of production of the sugar and produces the sugar cane to be refined," the circular read.

"We might request them to open their books to prove that they are the producers [of the raw sugar]," BIR Deputy Commissioner Nelson M. Aspe said in a phone interview.

Refinery and mill owners are required to pay VAT in advance before they can withdraw refined sugar from the refinery or the mill.

Exempted from advanced VAT payments are withdrawals of producer-cooperatives, certified by the Cooperative Development Authority to be in good standing, and withdrawals of non-producer cooperatives for their members.

However, if a non-producer cooperative sells sugar to traders, who are not direct exporters, or nonmembers of the cooperative, the transaction requires payment of VAT in advance.

The regulation also specified that the amount of VAT is computed by applying the 12% VAT rate on the base price of P850 per 50-kilogram bag of refined sugar produced by a refinery and of P760/Lkg bag produced by a mill.

Subsequent base price can still be adjusted when deemed necessary by the Internal Revenue commissioner upon consultation with the chairman of the Sugar Regulatory Administration, the circular read further.

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Francisco D. Varua, executive vice-president of the Philippine Sugar Millers Association, Inc., said in a separate phone interview that "there would be no change as far as the retail prices are concerned, because we have been paying VAT."

Expressing stiff opposition against RR 13-2008, however, Lucio M. Barcelona, trustee of the Confederation of Sugar Producers Cooperatives, said yesterday that his group is ready to take the issue to court.

"[Filing a case against the BIR] is one of our options. We don’t know yet what specifically we will do," he said in a separate interview after a Senate hearing yesterday on the matter.

The Senate inquiry was called based on a Resolution No. 645, filed by Senator Manuel A. Roxas II after his dialogues with sugar cooperatives that complained of the new rule.

Jose Ramos, the group’s secretary, argued that sugar cooperatives have tax exempt status under the Cooperative Code of the Philippines and the National Internal Revenue Code of 1997.

"Revenue regulation is not a law. There is a decision by the Supreme Court that implementing regulations, including revenue regulations, should conform with the laws, not contradict the provisions of the laws. This is of doubtful validity and legality," Mr. Ramos argued before the Senate committee.

"We are willing to pay the rightful tax if it is due, but we will not allow that our privileges and incentives given by law will be taken away from us. It’s only Congress that can remove those exemptions given to cooperatives," he stressed.

BIR’s Mr. Aspe said that while they recognize existing laws on the tax exempt status of cooperatives, the Cooperative Code was amended by the Comprehensive Tax Reform Law.

"We are just clarifying the limits of tax exemption of sugar cooperatives," Mr. Aspe said in a separate interview after the hearing.

"They [cooperatives] should comply with the requirements," he added. "It’s up to Congress to decide [if the law should be changed]."

Senator Juan Miguel F. Zubiri, chairman of the cooperatives committee, argued that the new rule was "grossly un-fair" since "the sugar industry is facing a lot of difficulties."
source:bworldonline