Proper Rate of Taxation on Non-Alcoholic Beverages (e.g., Fruit Juice, Iced Tea, Soft Drinks) Consumed in a Hotel Restaurant

December 27, 1995 BIR RULING NO. 188-95 114; 102 (a) 000-00 188-95 Embassy of the United States of America Manila Attention: Dr . Paul Hacker First Secretary M a d a m : This refers to your letter faxed letter dated September 6, 1995, wherein you expressed your observation concerning the practice of some proprietors or operators of restaurants in hotels in Manila of not "charging consistently their customers/patrons as far as taxation of food and beverages is concerned" and which you believed is "possibly not in accordance with Philippine law." Specifically, you are requesting our opinion on the following questions, viz: "1. Is a hotel allowed to charge more than the legal rate of 4% on restaurant meals? cdll "2. Is a hotel allowed to charge more than the legal rate of 8% on alcoholic beverages consumed in a hotel restaurant? "3. What is the proper rate of taxation on non-alcoholic beverages (e.g., fruit juice, iced tea, soft drinks) consumed in a hotel restaurant? In reply, please be informed that pursuant to Section 114 of the Tax Code, as amended, a proprietor or operator of a restaurant, refreshment parlor and other eating places is subject to a percentage tax of 4% on gross receipts from sales of food and 8% on gross receipts from sales of distilled spirits, fermented liquors or wines. However, since the percentage tax is an indirect tax, the said proprietor or operator of a restaurant or refreshment parlor operated within the premises of a hotel can pass on or shift to the customers or patrons as part of the food and/or drinks ordered by the latter the amount of tax but the same should not be higher than the said 4% and 8% tax rates prescribed by the Tax Code, as amended. As regards your question No. 3, please be informed that the sale of non-alcoholic beverages such as fruit juice, iced tea, soft drinks, is considered sale of food subject to 4% tax. However, when the said non-alcoholic beverages are included as part of the food ordered by and served to the customer or patron, the same shall not be subject to another round of 4% tax but shall form part of the total gross receipts from the sale of food which shall be subject to the 4% tax. It may be stated however, that beginning January 1, 1996, proprietors or operators of restaurants, refreshment parlors, cafes and other eating places, including clubs and caterers, shall no longer be subject to the percentage tax but to the 10% value-added tax imposed under section 102(a) of the Tax Code, as amended by R.A. No. 7716 otherwise known as the Expanded Value Added-tax law. Since VAT is an indirect tax, the amount of the tax may be shifted or passed on to customers/patrons like you as part of the cost of the food and/or drinks ordered by the latter. prcd Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue