The bitter side of sugary-drinks tax

WHEN schools started to ban soft drinks in their respective canteens some three years ago, the teachers themselves started to smuggle in and hoard in their respective drawers the very thing that they ask their students not to consume.

They need the sugar to teach, some of them say, not minding their school administration’s policies that also affected them, as they cannot purchase soda drinks anymore within the school premises.

 This time around, as the Duterte administration makes headway into its comprehensive tax-reform package, called Tax Reform and Acceleration and Inclusion Act (TRAIN), a House bill has been filed to slap tax on these sugary drinks as part of the revenue-generation initiatives. 

 

‘Antipoor’

A bill filed by Sultan Kudarat Rep. Horacio Suansing Jr. and Nueva Ecija Rep. Estrellita Suasing seeks to impose a P10 tax on sugar-sweetened beverages, the rate of which will be increased every year by 4 percent.

That caught the attention of many corporate chief executives, many of whom were previously silent whenever the government plans to introduce new taxes. Some of these corporate top honchos even called the move as antipoor.

“We have many concerns. First of all…it affects the masses most. The proposed tax increase here is six times what was proposed in Mexico. At the end, who are the primary consumers of ready-to-drink beverages, it’s the masses of the Filipino people. Just imagine if I drink one coffee a day and I have to pay P3 or P4 more times 365, that’s P1,500 a year. That’s the breakfast of the masses,” said Lance Gokongwei, president and CEO of food group Universal Robina Corp. (URC).

Gokongwei, also president and COO of the family’s holding firm JG Summit Holdings Inc., was referring to Mexico’s same plans on sugar tax, but at a much lower rate.

“The effective increase we’re looking at is P10 a liter in a per capita basis. The average capita per income here is $3,000. We always cite Mexico. The effective tax there was P1.45 per liter in a country where capita per income was $10,000,” Gokongwei said.

URC sells products such as C2 iced-tea beverages, which at one time outsold Coke in the Philippines, and Great Taste coffee mixes, among other sugary products. Its products are now being sold across Southeast Asia, including in Vietnam, where it has a manufacturing plant.

Sugar-sweetened beverages refer to nonalcoholic drinks that contain caloric sweeteners, added sugar, or artificial or noncaloric sweeteners. It may be in liquid form, syrup, concentrates, or solid mixture added to liquids.

Revenue figures

Estimates of the Department of Finance (DOF) foresee that a liter of Coke, now priced at P31 per bottle and rival Pepsi 1.5 liters, being sold at P46.50, will go up by an average of 36 percent.

A can of regular 330 milliliters of Coke, for instance, contains some 34.5 grams of sugar and 136 calories, which teachers say they can easily burn as they teach.

Although debatable, the amount of sugar in a single drink can lead to obesity and some of the noncommunicable diseases, such as Type-2 diabetes, blood sugar disorders and other related illnesses.

The DOF, keen on passing the new tax measure on health concerns rather than to generate additional cash, estimates a revenue of between P40 billion and P47 billion after the bill is passed into law.

The group Action for Economic Reform, a non-governmental organization that helped lobby to pass the sin-tax law, said it has not initiated a coalition yet on the sugar-tax issue like what it did with the tobacco excise tax, but its allied organization, such as the Philippine College of Physicians, has a stand on the issue.

It said, however, the bill needs more study on how the P10-per-liter tax came about, but generally the group has not yet moved significantly to push for the proposal, which is posing more questions than answers to the industry.

For one, there are some concerns if the government can really collect such amount when demand naturally drops when a new tax is passed, then recover soon after.

Feasibility question

A study of the World Health Organization (WHO) said taxing sugary drinks can lower consumption. The study said fiscal policies that lead to at least a 20-percent increase in the retail price of sugary drinks would result in proportional reductions in consumption of such products, citing its report, titled “Fiscal policies for Diet and Prevention of Noncommunicable Diseases”, published late last year.

The Beverage Industry Association of the Philippines, meanwhile, said such move can lead to a P20-billion decline in sales of sugar-sweetened beverages as demand declines.

According to the Philippine Association of Stores and Carinderia Owners, 80 percent of the consumers of these products are low-income earners and 30 percent to 40 percent of the income of sari-sari store owners comes from the sale of coffee, juice and carbonated drinks.

There are also concerns on how the government—the Bureau of Internal Revenue (BIR)—can monitor and administer such new measure.

According to the bill, the sugar-excise tax will not be levied on the raw sugar production itself, but on the products. An excise tax, which is an indirect tax charged on the sale of a particular good, is normally being collected at the source of product.

The excise tax on oil products and vehicles, for instance, is being collected at the port of entry where it will be discharged. For tobacco and alcohol products, the tax is being collected at the manufacturing plants before these are shipped out to the distributors or to the retailers.

Too high

Michael Tan, president and CEO of the LT Group Inc., said not only is the rate too high, but it will be impossible to administer such new tax measure at its current state.

“What will happen on the post mix in the restaurants or in Starbucks or in carinderia, how do you tax that? They’ll put a coffee, they’ll put a sugar and sell it over the counter. By definition, that’s excise-taxable. In microbreweries, you brew in a pub and sell it to the customer, that carries a tax. There should be a tax by their current definition and to be consistent on the existing policies on alcohol,” Tan said.

The LT Group holds most of the businesses of tycoon Lucio Tan, including PMFTC Inc., the combined company of Philip Morris Philippines and Fortune Tobacco, and Asia Brewery, which holds a stable of local and international beer brands and alcohol-laced pop drinks such as Tanduay Ice.

When the new excise tax on the so-called sin products was implemented during the Aquino administration, Tan was vocal on his smuggling allegations against one of the players, Mighty Corp., which is now being sued for smuggling and tax evasion.

“So from the manufacturing side, cigarette factories, there are six cigarette manufacturing, they cannot even manage to stop one. So this will be hundreds of beverage facilities and I don’t think the BIR has the manpower to police it,” Tan said.

“So you will end up with the bigger companies complying, and the smaller ones not complying. That’s only at the factory level. What more at the retail level, at the post mix, like the restaurants and bar,” he said.

The sugar planters, meanwhile, are backing the increase to double the excise tax to P20 per liter on the imported high fructose corn syrup (HFCS), a product also being used by beverage companies to sweeten their drinks.

WTO issue

That proposal, meanwhile, has other repercussions, especially on the possible allegations of protecting local farmers, as the county is a signatory to the World Trade Organization (WTO).

“We’re putting up an HFCS plant. It will be operational soon and the input is corn. So how can you tax it higher? There are more corn farmers in the Philippines than sugar farmers. It’s a nonlocal gain. That’s an issue [for] WTO there. You cannot discriminate, [otherwise] people will discriminate our pineapples and banana if we do that,” Tan said.

Former Ambassador Alfredo Yao, now chairman of Macay Holdings Inc., which owns the family’s carbonated business that manufactures RC Cola and Zest-O drinks, the government should instead tax the raw sugar itself and not the products.

“Then it’s a fair sharing; everybody shares. Everybody shares and it will not be as abrupt as now and only result to a peso [increase] per liter on specific industries only,” Yao said.

“We have conveyed a message to the congressmen. Now we are talking to the Senate. I hope they understand. I think the government side will understand. We know where they’re coming from. They need the taxes and all,” he said.

For now, the chief executives are still studying their next moves if indeed the Duterte administration’s TRAIN, which includes the sugar tax, can railroad their otherwise sweet business.

source:  Business Mirror