Soft drinks tax could drive prices up by P3

MANILA, Philippines - The proposed 20% excise tax on soft drinks under House Bill 5039 could raise prices of this product by P3, an official of a Pepsi-Cola Products Philippines Inc. said in a committee hearing at the House of Representatives Wednesday. "The excise tax will serve as additional cost, which may lead to passing the burden to our consumers," Redentor R. Gabinete, tax director at Pepsi-Cola Products Philippines, Inc. said. Mr. Gabinete said the prevailing suggested retail price for a bottle of soft drinks is less than P15. "If we will be given tax, there would be an additional 20% increase to our manufacturing cost, translating to P3 increase [in cost per bottle]," he said. He said the companies will be torn between passing the cost to consumers or shouldering the expenses themselves. "If we are to shoulder the expenses, a significant reduction in our profits is to be expected," Mr. Gabinete said. However, he said that passing on the burden to consumers is complicated. "Our computations are dictated by market forces. Market demand will go down as the price increases. Our sales will drop, and allied industries will suffer the same fate," he said. Cindy Lim, a representative from the Beverage Association of the Philippines noted that in 2006, soft drink companies reported a 135-million case decrease in sales due to a 92-centavo increase in retail price. A 4% decrease in retail price in 2007, however, increased sales by 144 million cases that same year. "If the bill will be passed, the government will also not be able to get targeted revenues because production will slow down," she said. Teresa S. Habitan, Finance department director for fiscal policy and planning, said the department favors the imposition of a 20% tax on soft drinks rather than the proposed 10% tax on syrups used for such drinks. "We expect a to get P5 billion annually just from the total sales of Pepsi-Cola and Coca-Cola," she said. The Finance department opposes HB 595, which seeks to slap a 10% excise tax on flavored syrups that soft drinks manufacturers use, arguing that syrup makers could declare that their products are not for the soft drinks sector in a bid to evade the tax. This evasion, in turn, would pose monitoring difficulties for the tax bureau. — J. F. S. Valdez, BusinessWorld