An attempt by the government to discourage soft drink consumption and raise additional revenues by taxing sugary drinks now threatens to unsettle the entire P147-billion non-alcoholic beverage industry, with prices of instant coffee and powdered juice likely to shoot up by over 50 percent and 200 percent, respectively.
“This is anti-poor. About 92 percent of Filipino households consume instant three-in-one coffee,” says Joan Mary Sumpio, the regulatory manager of Mayora (Vouno Trade and Marketing Services Corp.) which distributes the Indonesian coffee brand Kopiko in the Philippines.
Sumpio says an excise tax of P10 per liter of volume capacity on sugar-sweetened beverages will likely increase the base price of a 25-gram sachet of Kopiko from P5 to P8.
The House of Representatives earlier passed House Bill No. 5636, the first package of tax reforms, which includes the imposition of P10 or P20 excise tax per liter of sugar-sweetened beverages such as soft drinks, sweetened tea, sweetened coffee, carbonated beverages with added sugar, flavored water, energy drinks, sports drinks, powdered drinks not classified as milk, juice, tea and coffee, cereal and grain beverages and non-alcoholic beverages that contain added sugar.
The Department of Finance hopes to raise an additional P47 billion from taxes on sugar-sweetened beverages.
The excise tax, however, will not be imposed on milk products, infant formula, milk alternatives (soy milk, almond milk), flavored milk (chocolate milk), 100-percent natural fruit juice, 100-percent vegetable juice, meal replacement, medically indicated beverage, ground coffee and unsweetened tea. Also exempted are drinks made inside coffee shops, juice shops and made by street vendors.
“A lot of products will be slapped with P20 per liter excise tax. So, it’s not just a 100-percent rate maximum increase. It is really over 200 percent just like in the case of Tang. The public needs to be aware that it’s not just the carbonated drink [soft drinks] that will be impacted. There are other beverages like powdered juices and three-in-one coffee which really the target the C, D and E market. The poor will be affected the most,” says Shanahan Chua, head of corporate and government affairs at Mondelez Philippines Inc. which distributes Tang powdered juice in the Philippines.
The proposal is to slap a P10 excise tax on beverages using pure Philippine sugar and P20 on products using other sweeteners. “So, if you look at our product like Tang, the price increase would be P20, because we are a fully imported finished good. We are going to be taxed P20, so the base price of a 25-gram sachet of powdered juice that could make a 1-liter drink would increase from P9 or P11 including VAT at sari-sari stores to over P30. “That is about a 200-percent price increase,” Chua says.
“For Tang, our consumers are mostly C, D and E market. I don’t think the D and E consumers will be able to afford over P30 Tang. They have been buying it for less than P11 at sari-sari stores,” says Chua.
Chua says an excise tax of P20 per liter of volume capacity on SSBs will be the highest in the world, exceeding P15 a liter in Norway and P9 a liter in the US.
Mayora and Mondelez are among the 13 member-companies of the Beverage Industry Association of the Philippines, which operates more than 100 manufacturing sites with over 35,000 direct employees and P130 billion in investments in the country.
Chua says about 80 percent of the consumers of SSBs are low-income earners. Data show that carbonated beverages alone account for 31 percent of sari-sari store sales.
A UA&P economic impact study of the SSB bill says the measure will hurt sugar and coffee farmers, and sari-sari store owners. “Based on UA&P study, we’re looking at around 30-percent impact on revenue. In the end, it’s our consumers who would be impacted,” says Chua.
Sumpio, a nutritionist by profession, also contests the reason for taxing SSBs, saying there is no concrete study linking sweetened drinks to obesity or diabetes in the Philippines. She says Filipinos’ per capita consumption of non-alcoholic ready-to-drink beverages is insignificant compared to other countries.
A study shows that the annual beverage per capita consumption in the Philippines was only 160 servings (8 ounces per serving), compared to over 600 servings in Mexico and over 500 servings in the US. Sumpio says that of the 192 countries in the world obesity index of the World Health Organization, the Philippines ranks only at 155th.
“Based on national studies, the contribution of sugar to total grams of food intake among Filipinos is low, and it will be lower if you convert it into caloric contribution. It is not enough to be a direct cause of diabetes or obesity,” says Sumpio.
Chua says the UA&P impact study based on AC Nielsen data also shows that the proposed tax will result in reduced government revenues, economic contraction and job losses. The study forecasts a P20-billion decline in sales of SSBs, P51-billion drop in revenue of related industries, a loss of 133,750 direct jobs, 1.5-percent increase in unemployment rate, P30-billion loss in revenue from VAT and corporate income tax and a total of P63 billion in economy-wide losses.
Chua says the tax computation should be based on the sugar content and not on the whole volume of the product.
“Generally, if we look at the volumetric tax rate, it applies differently across our products. It is not targeting the sugar content. It is per liter, and our 25-gram sachet makes one liter. Regardless of how much sugar you have in the product, you are taxed at the end product. So technically, they are also taxing the water,” says Chua.
Sumpio agrees, saying “technically, 85 percent of what they are taxing is water.”
Chua says sugar accounts for less than 2 grams of a 100-milliliter glass of Tang juice. “That’s around 20 calories per serving,” he says.
Both Chua and Sumpio says the excise tax, at its current form, will hurt the sales of Kopiko and Tang. “Coffee is a very price sensitive category. A 50-percent price increase could result in a 40-percent decline in sales,” says Sumpio.
“The Philippines is a very price sensitive market,” says Chua. He says companies have introduced products in smaller packages and sachet in the Philippines so that more Filipinos could avail of them.
“Modelez and all other members of BIAP are very supportive of what the government wants to happen about raising revenues to support its ‘Build, build, build’ projects. It’s really for the Filipinos. But from Modelez’s perspective, we really need to look at, study and have more time to asses if it is the right taxation,” says Chua.
“Is the volumetric tax the right one or will it be more fair and equitable if you look at the sugar content. Let’s look at the fair and equitable way of taxing it so that it would not discourage the whole industry,” Chua says.
“On average I think we are looking at a 40-percent to 75-percent sales volume decline, and that’s significant. And that would impact upstream and downstream sari-sari stores,” says Chua.
Chua says there is also a danger that consumers will shift to more affordable but informal products which are not property handled such as ‘sago’ and ‘gulaman’ peddled by street vendors. “What will happen is that consumers will look for alternatives or those unregulated without any assurance of food safety. And it may actually cause food-borne illnesses,” he says.
“We are not against taxation per se, but let us really assess its impact on businesses and consumers,” says Chua.
Sumpio says sugar drinks tax can also have an impact on nutrition in the Philippines. “Filipinos are food insecure. A part of the National Nutrition Survey shows that 13 million households or 60 million Filipinos belong to the food insecure group. So increasing the prices of food products will contribute to food insecurity,” she says.
Sumpio says instead of taxing sugar to avoid obesity, the government should encourage lifestyle change among inactive Filipinos. “A Food and Nutrition Research Institute study shows that nearly 50 percent of Filipinos are inactive,” she says.
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