Tax reform to work as fiscal buffer in expansionary economic policy — DOF

The Department of Finance (DOF) said yesterday that the proposed comprehensive tax reform program of the Duterte administration will serve as the fiscal buffer that would enable the government to pursue its expansionary economic policy.

During a forum of the Economic Journalists Association of the Philippines (EJAP), Finance Secretary Carlos G. Dominguez III said the tax reform is needed to implement President Duterte’s ambitious "Build, Build, Build" program consisting of some 75 major flagship projects.

According to Dominguez, the government wants these infrastructure projects to be completed or started over the next five years.

The first package of the tax reform program — the Tax Reform for Acceleration and Inclusion Act (TRAIN)—is meant to provide the government with sufficient funds to maintain fiscal discipline, Dominguez said.

He also added that the TRAIN aims to invest heavily not only in insaid frastructure, but also in programs to expand access to social services such as health and education.

“It is important, to be sure, that the tax reform program be passed as soon as possible. Tax reform will give us the fiscal space to pursue the expansionary measures,” Dominguez in his videotaped message to EJAP.

“Without the additional revenues the reform package will bring, we cannot fully pursue the infrastructure program,” he added.

Earlier, Dominguez said that the failure to pass the TRAIN would “be very bad for the government’s infra program,” which, he said, would have to be “whittled down by 30 to 40 percent” without tax reform.

Dominguez said the government has “identified 75 major infra projects to be undertaken over the next few years” under its “Build, Build, Build" program.

“Of these flagship projects, 18 have been approved by the NEDA Board. When the shovels hit the ground, expect an economic growth spurt,” he said.

Dominguez said that aside from ensuring the fiscal space needed for the government’s massive spending on infrastructure and social services, the Duterte administration also has to deal with constraints such as the rehabilitation

The proposed additional tax on sweetened beverages favors the rich, who buy their sugar fix drinks from upscale coffee shops and other establishments, but penalizes the poor, who get their supply of cheap powdered juice sachets and bottled drinks from the neighborhood sari-sari stores.

Atty. Adel Tamano, head of the legislative committee of the Beverage Industry Association of the Philippines (BIAP), explained to Business Bulletin in an interview what he called as the “inauthenticity” of the objective of this taxation, which aims to raise additional revenue and curb consumption of sugar sweetened beverages (SSBs) to prevent obesity and complications brought by diabetes disease.

“We are not against taxation, what we are against is discriminatory and regressive taxation,” said Tamano. The additional tax on sweetened beverages is part of the government’s TRAIN Bill or the Tax Reform for Acceleration and Inclusion.

Product coverage include all sweetened juice drinks (tea and coffee), carbonated (caloric and non-caloric sweeteners), flavored water, energy and sports drinks, powered drinks, cereal and rain beverages, and non-alcoholic beverages that contain added sugar.

The proposed additional tax on sweetened (sugar or artificial sweetener) manufactured beverages will be additional R10 for per liter for drinks using locally produced sugar and R20 for all other sweeteners.

The current tax reform measure will effectively raise prices of softdrinks by 30 to 40 percent and powdered juice by 200 percent, Tamano said. The proposed new tax does not also make any distinction as to the type of drinks, whether the drink has little sugar content or no sugar at all, as long as they are sweetened.

ANTI-POOR The additional tax only covers beverage products that are sold in sari-sari stores and patronize by the C, D and E markets.

Notably, Tamano said, the proposed taxation does not cover drinks sold at upscale coffee shops where the rich frequent for their sugar fix. A small coffee mocha at the popular coffee shop costs R135 as against the R8 softdrink.

It is discriminating this particular kind of products and producers of these drinks and favoring other companies, which are also producing the same sweetened drinks at even more expensive prices, Tamano stressed.

Not only that, Tamano said the proposed new tax is regressive as it will largely affect the poor. The sugar sweetened beverages cover all drinks that largely cater to the C, D and E social classes or the lowest brackets.

“The poor will bear the brunt on the high cost of these beverages,” he said.

“This tax will be slapped on RC Cola, Pepsi and Coke, which are used by most Filipinos during gatherings and lunches, but your drinks will not be taxed if you buy them from Starbucks or Bubble Tea or Jamba Juice and other expensive natural fruit juices. The rich are able to buy these expensive sugary drinks but they are not taxed, why tax the C, D and E consumers.”

“The MNCs and the big companies producing these beverages are feeling for the poor because they are our market, the C, D and E. We don’t market those who are in the A and B segments.”

“When I joined Coke in 2012, most of our income came from food chains such as McDo and Jollibee, but the truth is 80 percent of income comes from sari-sari stores and the clients of sari-sari stores are different from the clients of Rustan’s, McDo and Jollibee.”

HIGHEST TAX Based on the economic impact study by the University of Asia and the Pacific, a sachet of powdered juice drink (Tang) selling at R9, but can produce one liter of drink means will cost R19 (plus R10 tax) or 108.61 percent increase or double the R9 per sachet to R19.

A 3-in-1 instant coffee costing R5 per sachet that can make 200 ML coffee, which is 20 percent of a liter, will increase price by 48.41 percent based on R10 per liter excise tax alone or from R5 to R8 per sachet. Prices of tea drinks will increase by 52.48 percent to R30 from R20, the study said.

Mexico’s tax on sweetened beverages is only R2.50 per liter, making the Philippines 8 times more expensive to a country that is more progressive, Tamano cited.

Should the current bill passes, Tamano said the Philippines will have the distinction of having the highest tax on beverages globally.

“We raise this point because taxation has to be sensible and fair. It does not seem fair at all,” he added noting that even Thailand is changing its tax system to lessen taxes on sweetened beverages.

The current bill aims to generate R47 billion a year in excise taxes, but the downside is that the industry also anticipates R20-billion reduction in sales from sari-sari stores, which account for 91 percent of retail stores in the country. The same study showed that 31 percent of sari-sari store sales are from carbonated beverages.

The study also estimated a R51-billion decline in revenues of related industries and R30-billion losses in revenues from VAT and corporate income tax. This will result in R63-billion total economy-wide net loss. Meanwhile, 133,750 direct and indirect jobs will be affected, resulting in 1.5 percent increase in the unemployment rate.

HEALTH Contrary to what has been peddled as facts, data from the World Health Organization (2015) showed that out of the 192 countries in the world obesity index, the Philippines only ranked 155th. It is not even in the higher tier of the Asian countries.

This is supported by the same study which showed that Filipinos are not overconsuming SSBs.