PRICE hikes are always controversial. With the current situation of commodity prices, Filipinos feel every additional centavo they have to pay to meet their basic needs. This is because Filipinos belonging to the lower bracket income cannot keep up with the ballooning prices of goods, especially those which are staple in every household. In their perception, the government’s inaction is to be blamed for rising commodity prices.
A probable issue of price hike on livestock and poultry products arose just recently. The Bureau of Internal Revenue (BIR) issued Revenue Memorandum Circular No. (RMC) 66-2014, amending RMC 55-2014. The circular provides a list of feed ingredients that may be subjected to value-added tax (VAT). Unless the taxpayer shows that the ingredients are unfit for human consumption or that the ingredient cannot be used for the production of food for human consumption, the ingredient/raw material should be subjected to VAT.
The lists of ingredients under the circular are as follows: 1. whey powder 2. skimmed milk powder 3. lactose 4. buttermilk powder 5. whole milk powder 6. palm olein. The circular also provides for a catch-all phrase, “and such other feed ingredients and additives used in the manufacture of finished feed which may hereinafter be determined by competent authority to have possible utilization for human consumption.” To avail of the VAT exemption, the circular further requires certification from the Food and Drug Administration that the ingredients are unfit for human consumption.
Under Revenue Regulations No. (RR) 16-2005, the sale or importation of fish, prawn, livestock and poultry feeds are exempt from VAT. This exemption covers ingredients, whether locally produced or imported, used in the manufacture of these animal feeds.
Republic Act No. (RA) 1556 also known as Livestock and Poultry Feeds Act, as amended by Presidential Decree No. (PD) 7, “ingredients” or “feed ingredients” is defined as any single article of feed or feeding stuff which enters into the composition of a ration, concentrate or supplement. The law does not distinguish the ingredient as to its fitness for human consumption. Previously, the VAT exemption only requires that the Bureau of Animal Industry (BAI) ascertain the classification of the importations as ingredients for animal feed. With the new rule, there is the additional requirement of a certification from the FDA for identification of whether a specific ingredient is fit for human consumption or not. In the end, we would expect that some of the ingredients will now be subject to VAT since many of these ingredients are also used in the manufacture of food for human consumption.
Tax exemptions are allowed to certain transactions by reason of public policy. The rationale for the VAT exemption of feed ingredients has been discussed in the case of Tolentino vs. Secretary of Finance and Commissioner, G.R. No. 115455. The High Court declared that in specific transactions, exemptions, such as purchase of ingredients used in the manufacture of feeds, are “granted, in some cases, to encourage agricultural production and, in other cases, for the personal benefit of the end-user rather than for profit.” Relative to this, the Court also held that “exempt from the tax are sales of farm and marine products, so that the costs of basic food and other necessities, spared as they are from the incidence of the VAT, are expected to be relatively lower and within the reach of the general public.”
Additionally, under VAT Ruling No. 12-01, the bureau opined that if the law declared the end product to be exempt, it is but logical that all the inputs needed to produce the end product must necessarily be exempt. The ruling also said that the exemption accorded by law to feed and feed ingredients is closely intertwined to the public policy of exempting basic food from the coverage of VAT, related as they are to the exemption of livestock and poultry of a kind generally used as, or yielding or producing foods for human consumption.
The Philippine populace has a higher concentration on the lower and middle income families. The impact of a little jump in the prices of basic commodities is magnified on these brackets because with very little extra funds (or none at all), there is little room for a rearrangement of their daily budget. Hence, the issue on price increase arises. The rationale for the exemption of inputs of feeds for animals, save the specialty feeds for animals considered as pets, is to prevent increase in the price of inputs to agricultural and marine food products, which are consumed more by low and middle income groups. If any of the inputs will be subjected to VAT, necessarily, it will be added to the cost of manufacturing, hence an increase in input price. There are two possible outcomes if this is to be the case: either the producer sector (meaning the livestock and poultry farmers) would squeeze their margins, or the end-consumer would carry the burden of such increase in price. As end-consumers, we just hope that the effect of the imposition of VAT on such ingredients will not greatly affect the prices of livestock and poultry products.
We could understand the reason of the BIR in passing the circular to avoid abuses of availing VAT exemptions such as diversion of ingredients for other purposes not related to the manufacture of animal feeds. We cannot argue on the good intentions of the circular. However, by imposing the circular, the BIR also sanctioned the ones diligently following the law. The BIR has other ways to meet the objectives of compliance. Say for instance, this should be included in the regular audit of the manufacturers. The BIR may also impose a threshold amount on ingredients which are susceptible from being used for purposes not in relation to the manufacture of animal feeds.
In this particular issue what we simply say is that, there is a need to revisit the practice of regulators of plugging the leakages by closing the whole pipeline. The BIR is not out of options yet and I submit that their choice in this case may not be the best one.
P&A is a leading audit, tax, advisory and outsourcing services firm and is the Philippine member of Grant Thornton International Ltd.
Eliezer P. Ambatali is a tax associate with the Tax Advisory and Compliance division of Punongbayan & Araullo.
source: Businessworld
No comments:
Post a Comment