Soft drinks makers told to bear impact of proposed 10% tax

MANILA, Philippines - Soft drinks manufacturers should bear the impact of a 10% excise tax on flavored syrups they use — to the point of raising their retail prices — in order to give government more revenues that can be used to prop up the economy amid increasingly difficult times, the chairman of the House of Representatives ways and means committee said in a hearing on the measure Tuesday. But both soft drinks makers and sugar millers warned that the impact of the proposed tax would go beyond their companies. Committee chairman Rep. Exequiel B. Javier of Antique argued that since bulk of soft drinks consumers are not poor, they should be able to afford higher prices and consumption should not be much affected. House Bill (HB) 595, titled "an act imposing a 10% ad valorem tax on flavored or colored syrups exclusively used in the manufacturing of soft drinks," and HB 5039, entitled "an act rationalizing the excise tax on nonessential goods," authored by Quezon Rep. Danilo E. Suarez (3rd district) and Palawan Rep. Abraham Kahlil B. Mitra (2nd district), respectively, both aim to increase revenues and safeguard the health of the citizens by discouraging them from consuming nonessential products like soft drinks. Industry officials said that they do not support the proposed measures because the imposition of excise tax on flavored syrups and on soft drinks will erode their business. Domino effect Jose Bayani Baylon, president of the Beverage Industry Association of the Philippines, said the proposed tax will have a far more negative than positive impact on the economy in general, and particularly on the beverage industry and allied sectors. "The taxes would cripple the beverage industry that continues to provide employment and economic opportunity to millions of Filipinos. It would have a domino negative effect on allied industries and would negatively impact a national economy," he said in a position paper. Self-defeating Jesus L. Barrera, legal counsel of the Philippine Sugar Millers Association, Inc. said that even though revenues from a 10% excise tax on the sale of non-alcoholic beverages has been estimated at P2.5 billion annually, the probable losses among the beverage sector, allied industries, and the government would be bigger. "A 2008 study conducted by the University of Asia and the Pacific on the beverage sector shows that a 10% increase in price due to an excise tax will result in an average reduction in sales revenue by at least 16%; a drop in gross income by an average of 31%; and household income and gross business profit multiplier effects will go down by at least 16%," Mr. Barrera said. "When sales of carbonated beverages drop, the estimated P2.5 billion in excise tax revenue will not be realized as it depends upon volume sold. The revenue which the Finance department expects to collect from the beverage sector in terms of other taxes will have to be adjusted downward, resulting in a significant drop in government revenue from the beverage sector alone," he added. Mr. Barrera said the carbonated beverages sector accounts for 23% of total national demand for sugar, which is about 353,000 metric tons, hence, a reduction in sales in this sector will have an effect on the volume of sugar demand. "The sugar industry contributes about P69 billion to our country’s GDP [gross domestic product.] VAT [value-added tax] collection from the sale of refined sugar is estimated to be at P1.92 billion annually. These numbers may drop if demand of sugar falls as a result of an excise tax on carbonated beverages," he said. Affordable Mr. Javier, however, countered that industry players can alleviate their plight by increasing their retail prices. "Could you not pass to consumers the burden, because the country needs these revenues now?" he asked, arguing that consumers of nonessential goods like soft drinks are usually not poor. "If you hike the price of soft drinks, it will not slow down the demand, for it is the higher bracket that usually comprises of non-essential expenditures they can afford it," Mr. Javier said. Mr. Baylon said the suggestion was not even worth considering. "Why should we adopt the suggestion of the chairman? Why should we add burden to our consumers? The bills are discriminatory enough already," he said in a telephone interview. Soft drinks tax ‘yes’, syrups tax ‘no’ Elsa P. Agustin, an economist of the Department of Finance (DoF) said the department favors imposing an excise tax on carbonated products, but does not back an excise tax on flavored syrups. "It is not practical to put a tax on raw materials," Ms. Agustin said in a phone interview. "Problems on monitoring might arise if the bill is approved, there might be leakages or mis-representations by traders and manufacturers and it would be an added administrative duty for us," she added.. "The panel has heard our position during the hearing. We will oppose this bill [10% ad valorem on flavored or colored syrups used in manufacture of soft drinks] even until the bicameral committee conference."