Beverage makers: Soft drink tax to ‘burden’ consumers, economy

MANILA, Philippines – The proposed 10% ad valorem tax on carbonated beverages sold in bottles and other tight containers in the country would  burden consumers, and hurt not only beverage makers but the economy, the Beverage Industry Association of the Philippines (BIAP) said.

BIAP was responding to the pronouncement of International Monetary Fund Resident Representative to the Philippines Shanaka Peiris that House Bill No. 3365 could be part of a good comprehensive tax reform package in the country, as it promotes good health while raising revenues. (READ: Soft drink tax a ‘good health measure’ – IMF official)

In a statement sent to Rappler, the BIAP said it is opposed to HB 3365 as it believes that instead of generating revenue, “the resulting decrease in sales of the Philippine beverage industry due to the proposed tax, will do the exact opposite and cause the government a net loss in revenue.”

BIAP members include Coca-Cola Philippines, Coca-Cola FEMSA Philippines, Pepsi Cola Products Philippines, Incorporated, San Miguel Corporation, PepsiCo, Mondelēz Philippines, Universal Robina Corporation, Asia Brewery, Dole Philippines, and Zest-O Corporation.

BIAP cited the following potential “consequences” of the proposed soft drink tax:

1. Net revenue loss

Citing a study conducted by the University of Asia and the Pacific Center for Research and Communication on HB 3365, BIAP said the proposed tax measure would negatively impact collections from other taxes, specifically Value Added Tax (VAT) and Corporate Income Tax because of the consequential price increase and drop in consumption.

“This will result in a net revenue loss to the government of an estimated P77.4-Billion,” it said.

2. Drop in sales, job losses

BIAP said it expects sales of companies engaged in the manufacture and distribution of sugar sweetened beverages to drop by an estimated P162.6 billion ($3.61 billion), if taxes are imposed.

It explained that the beverage industry has a multiplier effect on employment and other allied industries like packaging, trucking, and retail – specifically in the micro-entrepreneurial ‘sari-sari’ store segment of the economy.  

“The drop in sales and consumption for sugar sweetened beverages (SSBs), per our initial estimates will result in the loss of around 141,949 direct jobs and another 740,187 indirect jobs,” it said.

3. More ‘expensive’ drinks

BIAP said the proposed tax, which will charge P10.00 ($0.22) per liter of beverage, will make the cost of the favorite beverages of the average Filipino consumer “too expensive.”

BIAP said countries like Denmark and Zambia have abolished taxes on soft drinks “because of its negative impact on the economy and its regressive nature with negative effects on low and middle income consumers,” while countries like Egypt “have lowered their tax rates on these types of beverages for similar reasons.”

“According to ‘The Impacts of Selective Food and Non-Alcoholic Beverage Taxes,’ issued by the International Tax & Investment Center,  thelowered soda tax resulted to an increase in industry growth and profitability, employment, and government revenue,” BIAP pointed out.

4. It will not solve the ‘obesity challenge’

BIAP also said that while HB 3365 is purportedly seeking to curb the risk of obesity, non-communicable diseases (NCDs), and other health-related problems blamed on soft drink consumption, the fact is the bill would advance discriminatory tax policy masked as a health policy.

“Most importantly, HB 3365 will not solve the Philippine obesity challenge,” BIAP said.

BIAP said there is broad agreement in the medical and scientific community that obesity is caused by many factors, including diet, genetics, lifestyle, environment, among other factors.

“Consequently, to attempt to address obesity by simply focusing on one type of food and beverage is overly simplistic and ultimately will prove to be unsuccessful,” it said.

It added that no study has proven “beyond an iota of a doubt” that the consumption of sugar-sweetened beverages was the main cause of obesity, diabetes and other NCDs, and that there has been no research to prove that countries that have imposed such taxes saw a fall in obesity levels.

“Even the Food and Nutrition Research Institute and the Department of Health are hard-pressed to find a direct link between consumption of SSBs and obesity,” BIAP said.

It added that “sweet taxes’ or “obesity taxes” have failed to address obesity issues, citing two US states that have such taxes – West Virginia and Arkansas – but continue to have the highest obesity rates.

It also cited Mexico, which imposed the tax in 2014 to combat the world’s highest obesity rate. The soft drink tax led to a price increase of 16% by the first half of 2014 and a 5% drop in consumption, “but the corresponding reduction in the average Mexican’s 3,250 total daily caloric intake is a mere 9 calories less per day.”

“This implies that sugar-sweetened beverages are not the main contributor to a person’s daily food consumption,” BIAP said.

Not anti-tax

BIAP said it is not anti-tax but against “anti-discriminatory taxes, which do not directly address the growing concerns of a person’s well-being.”

“We welcome the opportunity to work collaboratively with the government and responsible members of civil society to address the country’s health needs, particularly the twin challenges of under-nutrition (malnutrition and nutrient deficiencies) and over-nutrition (overweight and obesity),” it said.

BIAP added: “Such an approach would yield more positive results than the narrow approach represented by HB 3365.”

The Department of Health supports HB 3365, citing the need to promote a healthy lifestyle among Filipinos, especially the youth.

In a position paper submitted to the House of Representatives on HB 3365, the DOH said the consumption of soft drinks and carbonated drinks has been identified as one of the behavioral risk factors contributing to the development of non-communicable diseases” like diabetes and hypertension.

It also cited international studies that link the consumption of the popular beverages to obesity.

The Department of Finance has estimated over P10.5 billion in annual revenues for the government if the tax measure is imposed. – Rappler.com

$1 = P45.10

Soda cans image via Shutterstock