BIR Regulation on Raw Cane Sugar VAT Advance

Legal basis and relationship to prior rules

The Regulations are promulgated pursuant to Sections 6 and 244, in relation to Sections 106, 109, 110, 111(B), and 116 of the Tax Code (Section 1).
The Regulations amend Revenue Regulations No. 6-2015, specifically on the definition of Raw Cane Sugar for advance business tax purposes (Section 1).
In case of inconsistency, inconsistent rules are repealed, amended, or modified accordingly (Section 10).

Policy and operational purpose

The Regulations establish a VAT/percentage tax system where certain sugar-related payments must be made in advance before key documents are issued or before sugar is withdrawn (Section 3).
The Regulations define Raw Cane Sugar and distinguish it from other sugar types to determine eligibility for VAT/percentage tax treatment (Section 2 and Section 5).
The Regulations require proof of advance tax payment or proof of exemption before warehouse receipts/quedans and withdrawals may be processed (Section 6).
The Regulations provide rules for crediting advance VAT and for handling unutilized advance payments (Sections 7 and 8).

Core definitions for sugar classification

Raw Cane Sugar is natural sugar extracted from sugarcane through simple mechanical processing: pressing for juice; boiling to crystallize; filtering using centrifuge to separate crystals; and drying to produce crystallized brown sugar (brown color due to natural molasses content in sugarcane) (Section 2(a)).
Raw Cane Sugar must result from only one (1) stage of filtering and centrifugal with no further process such as washing or bleaching (Section 2(a)).
Raw Cane Sugar must have color greater than 800 ICU and sucrose content by weight in dry state corresponding to a polarimeter reading of less than 99.5A (Section 2(a)).
The definition expressly includes muscovado, with these standard specifications as produced: Powder Class A (polarization of 86A minimum), Powder Class B (polarization of 77A minimum), and Lump (polarization of 57A minimum) (Section 2(a)).
Raw Cane Sugar, including muscovado, is the category exempt from VAT and from percentage tax under Section 109(1)(A) of the Tax Code (Section 2(a)).
Sugar refers to sugar other than Raw Cane Sugar, including sugar with sucrose content corresponding to polarimeter reading of 99.5A and above and/or color of 800 ICU or less (Section 2(b)).
Sugar produced from any of these is presumed, for internal revenue purposes, to be refined sugar: (1) product of a refining process, (2) products of a Sugar Refinery, or (3) product of a production line of a sugar mill accredited by the Bureau of Internal Revenue (Bureau or BIR) to be producing and/or capable of producing sugar with polarimeter reading of 99.5A and above, and for which the quedan issued is verified by the Sugar Regulatory Administration (SRA) as having polarimeter reading of 99.5A and above (Section 2(b)).
Sugar produced from sugar production lines accredited by the Bureau as capable of producing sugar with polarimeter reading of 99.5A or above is prima facie presumed to be refined sugar (Section 2(b)).
Sugar Refinery/Mill means an entity, natural or juridical, engaged in milling sugarcane into raw or refining raw sugar (Section 2(c)).
Sugar owners may refer to persons with legal title over sugar and may include: Sugar Planters, Traders, Sugar Millers, Cooperatives, and Associations (Section 2(d).

SRA verification and compliance mechanics

The Sugar Regulatory Authority (SRA) collects biweekly composite samples from mills for routine quality tests (Section 2(a)).
The SRA must provide the BIR a copy of test results showing polarimeter and color reading for Raw Cane Sugar produced, within 15 days from the end of the calendar month (Section 2(a)).
The SRA must ensure rules are in place requiring Raw Cane Sugar to be clearly placed on quedans issued for products falling under the Raw Cane Sugar definition (Section 2(a)).

Advance payment rule for sugar sales

The business tax (VAT or percentage tax) on the sale of sugar is paid in advance by the owner/seller before any warehouse receipt/quedans are issued or before the sugar is withdrawn from any sugar refinery/mill (Section 3).
If a person’s sales or receipts are exempt under Section 109(1)(V) of the Tax Code from VAT and the person is not a VAT-registered person, the person must pay an advance percentage tax equivalent to THREE PERCENT (3%) of gross monthly sales or receipts of sugar (Section 3).
The advance percentage tax rule under Section 3 is subject to the cooperative exemption rule in Section 4(c) for determining the advance percentage tax for cooperatives.

Computing the advance VAT and advance percentage tax

The advance VAT amount is computed by applying the VAT rate of twelve percent (12%) on a base price of ONE THOUSAND FOUR HUNDRED PESOS (P1,400.00) per 50 kg. bag for Sugar (Section 4(a)).
The base price used for advance VAT computation is adjusted when deemed necessary by the Commissioner, depending on prevailing market price of sugar (Section 4(b)).
For taxpayers exempted under Section 109(1)(V) of the Tax Code from VAT and who are not VAT-registered, the advance percentage tax is computed by applying the percentage tax rate equivalent to THREE PERCENT (3%) of gross sales or receipts (Section 4(c)).
Cooperatives are exempt from the THREE PERCENT (3%) gross receipts advance percentage tax rule under Section 4(c) (Section 4(c)).

Exempt withdrawals from advance VAT

Withdrawals of Raw Cane Sugar, including muscovado, are always exempt from advance VAT regardless of seller and buyer pursuant to Section 109(1)(A) of the Tax Code (Section 5(a)).
Withdrawal of sugar owned and withdrawn from the sugar refinery/mill by a duly accredited and registered agricultural cooperative of good standing with the Cooperative Development Authority (CDA) is not subject to advance VAT when sold to members, and it is also not subject to advance percentage tax (Section 5(b)).
The same agricultural cooperative treatment is conditioned: withdrawal of sugar for sale to non-members is subject to payment of advance VAT or percentage tax if the agricultural cooperative is not the producer of sugar (Section 5(b)).
A quedan or evidence of ownership showing the name of the cooperative together with another entity, natural or juridical, is not considered sales by the agricultural cooperative but by the other entity named therein, and therefore is not covered by the cooperative exemption for advance business taxes (Section 5(b)).
A cooperative must hold a valid, current and subsisting Certificate of Tax Exemption issued in accordance with Revenue Memorandum Order No. 76-2010 dated September 27, 2010 (Section 5(b)).
If the sugar owner reflected in the quedan is an agricultural cooperative, the sale of the resulting sugar to another agricultural cooperative is not subject to VAT under Section 109(L) of the Tax Code and is also not subject to advance percentage tax (Section 5(c)).
If the seller-cooperative is not an agricultural producer but merely purchases sugar from planters (whether members or non-members) or transfers sugar to a cooperative through assignment, its sale to another agricultural cooperative is subject to VAT, and withdrawal from the refinery/mill is allowed only upon payment of the advance VAT or Percentage Tax in the RDO having jurisdiction over the cooperative’s place of business (Section 5(c)).
A quedan or evidence of ownership issued to a cooperative together with another entity is not treated as sale by the cooperative, but as sale by the other entity named therein, and is therefore not exempt from the advance business taxes required under these Regulations (Section 5(c)).

Proof required before quedans and withdrawals

The proprietor of a Sugar Refinery/Mill must not allow issuance of quedan/warehouse receipts or other evidence of ownership, or allow withdrawal of sugar from its premises, without proof of payment of the required advance VAT/Percentage Taxes under these Regulations (Section 6).
Any person withdrawing or transferring sugar must submit proof of advance tax payment or proof of exemption from payment (Section 6).

Credit for advance tax payments

Advance VAT paid by sellers of sugar is allowed as a credit against output tax based on actual gross selling price of sugar, in addition to input tax credits allowed under Section 110 of the Tax Code (Section 7).
The claim for credit requires attachment of the Certificate of Advance Payment of the VAT/Percentage Tax and a copy of the payment form to the Monthly/Quarterly return (Section 7).

Unutilized advance tax payments and TCC

Unutilized advance tax payments that remain unutilized at the end of the taxpayer’s taxable year where the advance payment was made are treated as excess payment and may be available for the issuance of a TCC upon application (Section 8).
The owner/seller must file the application for TCC within two (2) years from the date of filing of the 4th quarter VAT return of the year such advance payments were made; if filed out of time, the reckoning is from the last day prescribed by law for filing the return (Section 8).
Advance payments that were the subject of an application for TCC are not allowed as carry-over and are not credited against output tax/percentage tax of the succeeding month/quarter/year (Section 8).
TCC issuance is limited to the unutilized advance tax payments and does not include excess input tax (Section 8).
TCC for input tax attributable to zero-rated sales is covered by a separate application following applicable pertinent rules (Section 8).

Penalties for violations

Any violation of the Regulations’ provisions is subject to penalties provided in Sections 254 and 275 and other pertinent provisions of the Tax Code, as amended (Section 9).

Repeal of inconsistent rules

Any rules and regulations or parts thereof inconsistent with the Regulations are repealed, amended, or modified accordingly (Section 10).

Procedures and forms via BIR circular

The BIR must issue a separate Revenue Memorandum Circular setting out procedures and the forms required for implementing these Regulations (Section 11).