Financing law: VAT on beer and soft drinks

The Financing Law repealed Articles 430 and 446 of the ET, and amended Article 475 establishing that as of March 1, 2019 VAT on such beverages will be charged on a multiphase basis; the liability will no longer be solely on the head of the producer or importer.

The Financing Law, 1943 of 2018, made several important modifications to the rules of the ET governing the liability for VAT on the production, importation and commercialization of beers and soft drinks. First, said law was responsible for repealing the rules of Articles 430 and 446 of the ET, which stated:

“Article 430. Causation of the tax on the sale of beer. The consumption tax on beers of national production is caused at the moment the article is delivered by the producer for its distribution or sale in the country.

Article 446. Responsible parties in the sale of soft drinks and similar. In the case of the sale of lemonades, flavored carbonated waters (including mineral waters treated in this manner) and other non-alcoholic beverages, excluding fruit, vegetable and vegetable juices of heading 20.09, only the operations carried out by the producer, the importer, or the economic partner of one or the other shall be taxed”.

At the same time, Article 9 of the Financing Law totally modified the text of Article 475 of the ET, as can be seen in the following table with the comparative versions of said norm:

In this way it is understood that the liability for VAT for the production, importation and commercialization of beers and soft drinks presents the following changes:

Beer of national production.

As of March 1, 2019, the VAT of 19% shall no longer be charged not only by the producer but also by the wholesalers or retailers who are in charge of reselling such product.

“the VAT charged to them by the producer will no longer be taken as a higher cost of the purchase, but as a deductible VAT.”

Therefore, the retailers involved in the chain also become liable for VAT on the sale of the product, which means that when they resell such goods they will no longer be able to deliver them as excluded goods but as taxable goods. In addition, when they cannot belong to the simplified VAT regime, a regime that now changes its name to be called “not liable for VAT”, they will have to resell it adding the respective VAT value at the rate of 19%. However, it is clear that in this case the VAT charged by the producer will no longer be taken as a higher cost of the purchase, but as a deductible VAT.

To illustrate the effects that this measure will have on prices for the final consumer, let us assume that the domestic producer charges $1,000 plus VAT of $190 for a single beer to the common regime retailer. Before the changes introduced by the Financing Law, the retailer simply took the full value of $1,190 as the cost of his product and applied a profit margin, let us assume 10%, to end up reselling the product to the final consumer for a value of $1,309. However, after the changes introduced by the law, the merchant will have to take the $190 charged by the producer as a deductible VAT, and separately must take the value of the $1,000 of the cost of the product, increase it with its 10% profit margin, and thus reach a selling price of $1,100 on which it must generate a VAT of 19% ($209), thus reaching the final consumer with the same selling price of $1,309.

This would mean that in practice there would be no increase in sales prices to final consumers (and therefore consumption of the product would not be affected). In addition, the Dian will receive from the marketer a net value for VAT of 209-190=$19. In any case, the marketer’s income tax return would also show an important change, since he would no longer declare an income of $1,309 and a cost of $1,190, resulting in a profit of $119; but would declare an income of $1,100, and a cost of $1,000, resulting in a profit of $100 (i.e. the final income tax profit would be reduced by $19).

In any case, the value of $19 that the Dian will begin to receive for VAT from the marketer is higher than the lower income tax of $19 x 33% = $6.27 that will no longer be collected. On the other hand, and in relation to the value of the industry and commerce tax payable by the marketer, it is clear that such tax will no longer be assessed on $1,309 but only on $1,100, and therefore the value that the municipalities will collect for such concept will be reduced.

Imported beer

It is understood that the financing law has not introduced any change in relation to this matter and therefore the VAT on such product will continue to be multiphase. That is to say, the Dian will charge it at the time of importation, but then the importer must charge it to the marketer and the marketer in turn must continue charging it to the final consumer.

Soft drinks and similar, whether imported or of domestic production

In this case it is understood that the liability for VAT changes as from January 1, 2019 and that the same points that we already mentioned in point 1 (which corresponds to the case of domestic beer) will apply.

Source: Actualize