Even as the total net revenues during the first year of implementation of the Tax Reform for Acceleration and Inclusion (TRAIN) Act were above-target, collections from the new excise on sugary drinks and value-added tax (VAT) fell short of the goal, prompting a government audit.
In a May 9 report on the TRAIN Law’s 2018 revenue performance, the Department of Finance (DOF) said “the biggest shortfalls are seen in the excise on sweetened beverages and VAT (P43.4 billion less).”
The latest DOF data showed that the excise tax on sugar-sweetened beverages had been programmed to reach P54.5 billion last year, but actual collections amounted to only P42.6 billion—P39.8 billion collected by the Bureau of Internal Revenue (BIR) on top of P2.8 billion from the Bureau of Customs.
“Sweetened beverage excise is short by P11.9 billion as the industry claims that no high fructose corn syrup (HFCS) has been used since Jan. 1, 2018. HFCS-sweetened beverages are taxed at P12 a liter, instead of P6 a liter,” the DOF explained. The TRAIN Law took effect on Jan. 1 last year.
“The BIR is conducting an audit to ascertain this claim. At the same time, the FDA (Food and Drug Administration) is also in the process of verifying if firms did submit applications to reformulate from HFCS to regular sugar. This is required before firms can legally market a new formulation,” the DOF said.
Meanwhile, the shortfall in VAT collections was a bigger P31.5 billion as actual revenues reached just P7.7 billion against the P39.2-billion goal.
“The main reason cited by the BOC is that there are only eight industries (power transmission, jewelries and government instrumentalities namely the Philippine Sports Commission, the Armed Forces of the Philippines, People’s Television Network, the University of the Philippines, the National Museum, and the Bangko Sentral ng Pilipinas) that reported importation, which is now VAT-able. On the other hand, the BIR reported that bulk of the VAT incremental revenue is attributed to the VAT on interest liabilities of Philippine Deposit Insurance Corp.,” the DOF said.
“The shortfall in VAT is also evident in overall BIR VAT revenues, which declined by 2 percent and are short by P68 billion in 2018, compared to target. One reason for this is the surge in imports that adds to input VAT claims in the BIR, hence lower VAT revenues. The DOF’s ROG (Revenue Operations Group) and the BIR are looking into the reasons for this overall low performance,” it added.
Last January, the BIR announced that it would audit percentage tax payments to see if there were taxpayers taking advantage of the lower VAT-exempt threshold for small businesses under the TRAIN Law.
Internal Revenue Commissioner Caesar R. Dulay had said the BIR would “monitor selected taxpayers on their compliance with the TRAIN Law through pre-audit of percentage tax payments by taxpayers that changed registration from VAT to non-VAT as a result of the increase in [tax-exempt] threshold.”
To recall, the TRAIN Law raised the exemption threshold for small and medium enterprises (SMEs) from P1.9 million previously.
DOF officials had said that those paying VAT before shifted to paying percentage tax, but collections from the latter had also been lower than target.
DOF data showed that the TRAIN targets for donor, estate and financial taxes also fell short last year.
But overall, last year’s actual additional revenues from the new or higher taxes slapped under the TRAIN Law of P68.4 billion exceeded the government’s P63.3-billion target by 8.1 percent.
For Finance Secretary Carlos G. Dominguez III, the passage of the TRAIN Law was a great success.
“Our main revenue agencies responded very well to the tax reform law. We have overperformed on our targets. In its first year of implementation, TRAIN achieved 108 percent of its revenue target. This demonstrates the revenue sustainability that is crucial to strengthening our fiscal position,” Dominguez told DOF employees during the agency’s 122nd anniversary celebration last week.
Also, Dominguez noted that the TRAIN Law “broadened the tax base and returned about P111 billion—the equivalent of a 14th month pay—to the pockets of 99 percent of our wageworkers,” which “reflected in a spike in consumer demand that helped boost the domestic economy.”