A tax on 3-in-1

Marvin A. Tort

Posted on May 18, 2017

Lawmakers, in approving a bill that will reform the tax system, is also imposing an excise tax of P10 per liter on beverages sweetened by sugar or sugar substitutes. The proposed tax is one of a kind, as no other food or nonalcoholic beverage in the country is currently imposed an excise tax.

Excise taxes are currently collected on oil and fuel, motor vehicles, jewelry, cigarettes and other tobacco products, and beer and liquor and other alcoholic drinks or beverages. Food and beverage for general consumption has been traditionally safe from excise taxes, until now. And, the proposed tax will include basic breakfast items like 3-in-1 coffee and powdered juices.

Food and beverage have been subject to value added tax or VAT since this replaced the sales tax many years back. But, there are exceptions, like brown sugar is non-VAT while white sugar has VAT. Moving forward, however, with respect to sweetened beverages -- including 3-in-1 coffee -- consumers will pay both excise tax and VAT on their purchases.

While more details are still to be made public, news reports indicate that the consolidated tax bill approved by the House Ways and Means Committee chaired by a congressman from Quirino included a version of House Bill No. 292, which was authored by a congresswoman from Nueva Ecija. Quirino and Nueva Ecija are not sugar-growing provinces.

The Nueva Ecija lawmaker has also been quoted as saying that her proposed tax would force the beverage industry “to be creative and come up with healthier beverages for the public.” At the same time, the tax collected would fund feeding programs in public schools, provide drinking fountains in public places, and, fund the construction of more sports facilities.

My problem with this is that there will not be much tax to collect, and thus not much money to pay for new public services and projects, if higher prices of “sweet” beverages will make them unaffordable or less accessible particularly to the poor and the marginalized -- or about 90% of the population.

The Beverage Industry Association of the Philippines (BIAP), in a news report, has noted that beverages that would be affected by the proposed tax are those consumed by the majority, particularly those in the lower socioeconomic classes. BIAP also noted that about 40% of the income of an average family was spent on food and nonalcoholic beverages such as coffee, juice, and soft drinks.

For consumers who think the proposed tax is only on soft drinks, House Bill No. 292 seeks to impose an excise tax on all “nonalcoholic beverage that contain caloric sweeteners or added sugar or artificial/noncaloric sweetener. It may be in liquid form, syrup or concentrates, or a solid mixture, that is added to water or other liquids to make a drink.”

The tax coverage includes soft drinks; nonalcoholic flavored, carbonated or noncarbonated beverages; fruit drinks and sweetened beverages consisting of diluted fruit juice; sports drinks for hydration; sweetened tea and coffee drinks; energy drinks; all nonalcoholic beverages that are ready-to-drink and in powder form with added natural or artificial sugar, among others.

The exclusions include 100% natural fruit juices, 100% natural vegetable juices; fruit flavored yogurt drinks, meal replacement beverages, and all milk products. In short, the exclusions cover items that are generally more expensive and thus cater more to middle-income and higher-income households. Incidentally, the tax rate of P10 per liter will also be increased by four percent every year.

And for those wondering how the proposed tax will impact on prices, citing a University of Asia and the Pacific economic impact study in 2016, BIAP claimed that the proposed tax will raise the average prices of instant coffee (3-in-1) to P8 from P5; powdered juice concentrate to P19 from P9, and sweetened tea drinks to P30 from P20.

That’s right, folks. That instant coffee we now take for breakfast will be 60% more expensive by next year. The price of powdered fruit juice will be more than double, while iced tea mixes will cost 50% more. One can only imagine how these price increases will impact on inflation.

Meanwhile, food manufacturers have also warned of a 0.5-percent contraction in the gross domestic product (GDP) and the loss of jobs in the manufacturing industry. Also citing the UA&P study, the Philippine Chamber of Food Manufacturers, Inc. said “the beverage industry is forecasted to lose almost 44% of its volume because of the tax.”

The chamber also claimed that the excise tax on sugar-sweetened beverages “would cost the economy a net loss of more than P60 billion,” as the estimated P38.74 billion in revenue gain would be offset by P101.55 billion in losses from declines in both industry sales and production.

My other concern is how does the government intend to implement the tax? Will it not just lead to illicit trading of “smuggled” beverages? If I order iced tea from Jollibee, or in a fine dining restaurant, will that be covered by the tax, too? What if I buy coffee from Starbucks and asked them to put sugar in it, do I have to pay more because of the tax?

If the Starbucks coffee is not covered by the tax, even if it is sweetened, why then is my favorite 3-in-1 coffee (which is what I can afford to drink at home every morning) subject to excise tax? This I believe is a ridiculous proposition. If I take my coffee black, in whatever form, it is exempt from the excise tax. But, if I buy it already mixed with sugar (3-in-1), I will pay 60% more? Why?

And, if the aim is to curb sugar consumption for health reasons, then why is that it seems only pre-packed or pre-bottled products will be taxed but not “drinks” that are mixed and then served in food and beverage establishments? Moreover, why is there no similar tax on food or beverage containing such “health hazards” as salt, starch, transfats, etc?

It is easy enough to say that people should just buy instant coffee in bulk, creamer in bulk, and sugar in bulk, and avoid the tax on 3-in-1 instant coffee. But, 3-in-1 already made life easier for most common folk. Why are we now regressing by forcing them to opt for the less convenient option of buying these items separately? All because someone thought a new tax is a good idea?

If people cannot afford bread, then let them eat cake? If people cannot afford the sweetened beverage tax, then instead of drinking 3-in-1 instant coffee at home, we should just let them drink brewed Starbucks coffee (without sugar) every morning? Or, they can always drink yogurt fruit drinks or other milk products, even if they are lactose intolerant?

The retail of food and drink is already subject to VAT, so any additional tax such as this excise tax is double taxation. Should we really make food and beverage more expensive through tax, to curb consumption? This makes the proposed tax anti-poor, and unjustly selective since a similar tax is not imposed on other “unhealthy” food and drink.

The tax, I believe, will be inflationary and will adversely affect consumers and producers. And not in a small way if prices will be go up by 50% to 100%. The tax will make basic food and beverage like breakfast coffee more expensive, and “simple joys” like sweetened drinks, less accessible particularly to poor people. Tax something else, but not food and drinks, for people’s sake.

Marvin A. Tort is a former managing editor of BusinessWorld, and a former chairman of the Philippines Press Council.