The BIR clarifies the duty of the Food and Drug Administration (FDA) to determine classification of beverages pursuant to Sec. 150-B of the NIRC of 1997, as amended, and as implemented by Revenue Regulations (RR) No. 20-2018
Revenue Memorandum Circular (RMC) No. 112-2023
17 October 2023
Effectivity Date: This RMC shall take effect immediately.
Republic Act (RA) No. 10963, otherwise known as the “Tax Reform for Acceleration and Inclusion (TRAIN),” took effect on January l, 2018. Section 47 of the said law introduced Section 150-B in the National Internal Revenue Code of 1997, as amended (Tax Code), providing for the imposition of excise tax on Sweetened Beverages.
Section 150-B(B)(1) of the Tax Code defines sweetened beverages and lists the categories of beverages included in the definition, to wit:
“SEC. 150-B. Sweetened Beverages. —
- Sweetened beverages (SBs) refer to non-alcoholic beverages of any constitution (liquid, powder, or concentrates) that are pre-packaged and sealed in accordance with the FDA standards, that contain caloric and/or noncaloric sweeteners added by the manufacturers, and shall include, but not be limited to the following, as described in the-Food Category System from Codex Alimentarius Food Category Descriptors (Codex Stan 192-1995, Rev. 2017 or the latest) as adopted by the FDA:
Likewise, Section 150-B(C) of the same Code enumerates the five (5) classes of products, including milk products, that are excluded from the coverage of sweetened beverage excise tax, viz.:
“(C) Exclusions. — The following products, as described in the “food category system from Codex Alimentarius Food Category Descriptors (Codex Stan 192-1995, Rev. 2017 or the latest) as adopted by the FDA, are excluded from the scope of this Act:
- All milk products, including plain milk, infant formula milk, follow-on milk, growing up milk, powdered milk, ready-to-drink milk and flavored milk, fermented milk, soymilk, and flavored soymilk;
Section 6 RR No, 20-2018, the implementing rules and guidelines on the imposition of excise tax on sweetened beverages, reiterates the above-cited exclusions and in addition provides for the definition of milk product, as a product excluded from excise tax, as follows:
“Milk product refers to products obtained by any processing of milk, which may contain food additives, and other ingredients functionally necessary for the processing (Codex General Standard for the Use of Dairy Terms (Codex Stan 206-1999):
Based on the foregoing provisions of the NIRC of 1997, as amended, and RR No. 20-2018, the products that are subject to the imposition of sweetened beverage excise tax are those that are included in the definition of “sweetened beverages” and in accordance with the descriptors found in the Food Category System from the Codex Alimentarius Food Category Descriptors (Codex Stan 192-1995, Rev. 2017 or the latest) as adopted by the FDA. At the same time, certain products are excluded from the coverage of sweetened beverage excise tax, based likewise on the Food Category Descriptors of the relevant Codex Stan. A major product category covered by the exclusions under Section 150-B(C) of the NIRC of 1997, as amended, is milk product, which the implementing RRs especially elaborated on.
THE ROLE OF THE FOOD AND DRUG ADMINISTRATION
Section 6 of RR No. 20-2018 provides for the role of the agency in determining beverage classification, as follows: “The proper classification of beverages shall be subject to the determination by the FDA.”
The FDA, to address requests by sweetened beverage manufacturers, distributors, and traders for “FDA confirmation of product classification according to Codex … to aid the BIR in the determination of excise tax and/or granting of tax exemption,” issued FDA Circular No. 2021-005 dated February 9, 2021, “to provide a uniform procedure for requesting FDA confirmation of the product classification and type sweetener/s used, in aid of TRAIN Law implementation specifically on SB products.”
The FDA’s identification and classification of food products, in general, is undertaken for the purpose of processing applications for authorization that food manufacturers and traders of raw materials submit to the agency, and the Codex it has adopted serves as the basis for such identification and classification—the authorization is issued by the FDA for purposes of registration and regulatory compliance.
On the other hand, the confirmation or certification of product classification that the office carries out — upon request by manufacturers, distributors and traders in the hopes that their products will be exempted from the sweetened beverage excise tax — is in the form of letter response and based on a review of the documentary requirements, including the list of ingredients, submitted by the requesting entities.
It bears emphasizing the importance of proper classification of beverages, as such classification shall be the basis for the inclusion of certain beverages in the coverage of sweetened beverages, which are subject to excise tax, as well as the exclusion therefrom of those beverages that fall within the scope of products listed under Section 150-B(C) of the NIRC of 1997, as amended, and Section 6 of RR No. 20-2018 that are excluded from sweetened beverage excise tax. Integral and central to proper classification is the mandatory use of and reference to the relevant Codex as basis for such classification.
Lastly, nowhere in the statutes is the FDA expressly vested with the power and authority to identify and classify food products. Nonetheless, under Republic Act No. 971 1, otherwise known as “The Food and Drug Administration Act of 2009,” the agency is endowed with the function of issuing, among others, “appropriate authorizations to ensure safety, efficacy, purity, and quality” of applicable health products. It must be noted, however, that these authorizations are limited to permits, licenses, certificates of registration and the like, and do not cover identification and classification of food products for taxation purposes.
THE POWER OF THE BUREAU OF INTERNAL REVENUE TO DETERMINE TAXABILITY
The FDA’s function is limited to the adoption of the relevant version of the Codex Alimentarius Food Category Descriptors (Codex Stan 192-1995) and, at best, the determination of the proper classification of beverages. Furthermore, the FDA’s determination should be based on reference to and understanding of the Codex Stan 192-1995 version that it has adopted and strict adherence to the parameters set forth therein.
It bears emphasizing, however, that the FDA’s determination of beverage classification is in no way absolute, final and conclusive and is subject to the discretion of the BIR to review such determination. The Bureau reserves its right to classify the products for taxation purposes should the FDA fail to strictly adhere to the applicable Codex Descriptors.
The Supreme Court has ruled in a number of cases that the interpretation placed upon a statute by the executive officers, whose duty is to enforce it, is entitled to great respect by the courts. Hence, the proper determination of whether a product or beverage is subject to the imposition and payment of excise tax or is covered by the exclusions therefrom rests with the Commissioner of Internal Revenue.
A copy of the RMC can be accessed below.