Section 25 of House Bill 5636 (dubbed Tax Reform for Acceleration and Inclusion or TRAIN) aims to impose an excise tax of P10 per liter of soft drinks, fruit drinks, energy drinks, and sweetened teas and coffees, to be annually increased by 4% effective Jan. 1, 2018. The sugar-sweetened beverage (SSB) tax was incorporated into the Duterte administration’s broader tax reform agenda as primarily a health measure. According to the Department of Finance (DoF), increases in price will redirect consumption of beverages with high sugar content toward better food choices, while incentivizing industries to develop healthy alternatives.
However, despite support from the Department of Health (DoH), the National Economic and Development Authority (NEDA), and the Food and Drug Administration (FDA), the SSB tax has been the subject of public controversy, including objections from lawmakers, food manufacturers, and the general populace. Objections to the tax are articulately summarized and neatly recast in economic terms in a recent BusinessWorld article by UP Economics professor Emmanuel de Dios. Arguing that the SSB taxes are unwarranted, undemocratic, and ultimately anti-poor, De Dios judges against the SSB tax, concluding it is a reckless and unjust measure being imposed by an arrogant administration immune to the facts.
In this article, we aim to formulate a more complete picture of the SSB tax. We argue that while the currently proposed price increases may indeed engender negative impact, stepping back to see the health and social issues the tax has the potential to address may help us negotiate a better version of the SSB tax, one that is genuinely pro-health and pro-poor. Instead of supporting or condemning SSB taxes wholesale, let us work together to find the sweet spot for an equitable SSB tax that will genuinely benefit the Filipino people, especially for the longer term.
REVIEWING THE RANGE OF ARGUMENTS
Consumption of sugar-sweetened beverages is known to raise blood sugar and blood pressure levels, put people at risk for dental problems, induce insulin resistance, and increase body weight (Andreyeva et al., 2011; Briggs et al., 2013). Sugary drinks also tend to increase appetite instead of satiating it, causing an overall increase in caloric intake. The link between SSB consumption and unhealthy weight gain is in fact well-established (Brownell et al., 2009), with studies indicating an increased risk of 60% for diabetes per additional daily serving of SSB (Ludwig et al., 2001), and a corresponding increased risk of about 35% for heart disease (Fung et al., 2009).
For supporters of the SSB tax, the plan is for Filipinos to benefit from the tax directly through their reduced consumption of SSBs and indirectly through government programs to be financed by revenues gained from the SSB tax. By reducing obesity rates and funding health initiatives, the SSB tax is argued to be a pro-health and pro-poor tax measure.
For critics like De Dios, however, the measure is anti-poor first because the tax increases the price of commonly consumed SSBs to the point where it is no longer affordable for many Filipinos. In this way, the SSB tax is an affront to people’s basic right to choose what to consume. De Dios calls this “dietary authoritarianism.” Second, De Dios argues that a tax would be reasonable only if like smoking cigarettes or drinking alcohol, SSB consumption had negative externalities — social costs that exceed the welfare and control of the direct consumer. But since medical procedures for diseases caused by SSBs are not covered by the state, no third party shoulders additional expenses; social costs are thus minimal.
Finally, citing the same case of the Mexican excise tax, De Dios points out that it remains unclear whose consumption dropped and whether the tax was indeed effective in improving health outcomes. De Dios asks, and rightly so: whose consumption is actually going to be deterred? The healthy or the unhealthy? The rich or the poor? More importantly, by imposing an SSB tax, will we drive the consumption of the poor toward unsafe alternatives (e.g., sugared water in plastic bags)? Won’t they need these SSBs as a source of affordable nourishment?
STEPPING BACK
Taking a cue from De Dios’s revisiting of first principles, we suggest that it is critical to step back from the issue of SSB tax per se, and seriously consider the health and social issues it addresses — or could address — in the first place (Mytton et al., 2012). As a tax being branded as a health measure, it is critical that its provisions align with the local situation.
Consensus among public health advocates is that in recent years preventable, noncommunicable diseases (NCDs or lifestyle diseases) cause significantly more deaths than do communicable diseases like dengue and measles. In the Philippines, about two-thirds of deaths are attributable to cardiovascular diseases, cancers, diabetes, and other NCDs, according to the World Health Organization (WHO). It is worth noting that the 31% figure of overweight/obese Filipino adults which De Dios cites is nearly twice the 16.6% figure in 1993. Thus, no matter the proposed policy solution, a health-driven case for reduced consumption of sugar-sweetened beverages is clear (Escobar et al., 2013), especially as a preventive strategy.
Moreover, in a country where most medical expenses are paid for by out-of-pocket funds (Bersales, 2014), the assertion that additional medical costs are borne primarily by the individual ignores the burden of the ordinary Filipino family. Families shoulder costs of diabetes medications and other procedures (e.g., dialysis, heart treatments, dental care), and the shock of these costs pushes vulnerable households into poverty that may become intergenerational (Tan, 2015). Additional social costs cascade from productivity losses of those with the medical condition as well as their financially crippled family members.
In contrast to the charge of “dietary authoritarianism,” we note how health-related decisions are not always made in a health-framed and influence-free context, tax or no tax (Brownell et al., 2009). Increased size of beverage container, for instance, is known to reduce satiety while increasing consumption (Finkelstein et al., 2013). Thus, companies are incentivized to produce bigger drinks, a business decision further reinforced by decreased marginal costs of production. Indeed, container sizes have consistently increased in the past decades. The free, informed choice of individuals is already influenced without government intervention, and it is influenced by corporations that gain from the unhealthy overconsumption of their customers. Under first principles of taxation, a tax is justified when imperfect knowledge and time-inconsistent decisions govern economic behavior.
But as both De Dios and members of the medical community like Dr. Antonio Dans have pointed out, an issue that accompanies the systematic reduction of caloric intake in a population is not just the decreased prevalence of obesity, but also the increased prevalence of chronic energy deficiency (CED).
Clearly, not all calories are created equal, but in a highly unequal society, it is certainly the case that cheap sources of energy like SSBs can become a necessary fail-safe despite the adverse risks that accompany them. A more complete picture of the health situation thus considers both extremes; similarly, an equitable solution aims to improve the welfare of the people without sacrificing the welfare of others.
THE SWEET SPOT
Based on the most recent evidence, SSB taxes may have real potential to drive down consumption of a “bad good” that ultimately endangers Filipinos’ health. But genuine health gains cannot be exclusively seen in terms of simple weight loss, especially in the Philippine context. To this end, we propose that a pro-poor, pro-health tax SSB tax must be viewed not just for curbing SSB consumption but more generally for improving the health of every Filipino (Basu & Madsen, 2017).
To cite the Mexico example and respond to the questions De Dios has raised: SSB consumption was documented to decrease by a monthly average of 6%, reaching a maximum of 12% decline in December. Reduction was also highest among those of lowest socioeconomic status, at 17%. As for substitutes? The same study noted no significant increase in consumption of other sugary goods. In fact, what was seen was a marked increase in sales of bottled water (Colchero et al., 2015). Mexico’s experience thus demonstrates that, if anything, an equitable SSB tax is possible.
What would be an equitable SSB tax in the Philippines, then?
This is the question around which we believe it is critical for debates to revolve. Instead of talking about accepting or rejecting the SSB tax wholesale, we suggest that the time for reviewing the House Bill with the Senate are a great opportunity to ensure that the proposed reforms have the best possible impact for the Filipino people. Support for an SSB tax is certainly well-evidenced in the literature.
At the same time, though De Dios’s take is rather stark, it establishes crucial points that may make the difference for a pro-poor SSB tax. As much as the message of a SSB tax is moderation, we ask: Might it benefit from the very same principle?
What are the factors that may be considered toward a pro-poor SSB tax? Now is the time for both creativity and compassion in designing the best possible version of the proposed measure.
For instance, what is the best way to tax SSBs: by volume or by sugar content? What rate is fair? Do we tax sodas and instant coffees at the same rate? If the proposed taxes nudge consumption away from SSBs, what can government do to actively incentivize healthy alternatives? From feeding programs to targeted vouchers for fruits and vegetables, the possibilities are endless for those with the welfare of the Filipino people, especially the poor, in mind.
The shared goal of policy makers, industry, and civil society is a healthier and more prosperous future for our nation. Finding the sweet spot for an equitable SSB tax will contribute to a well-designed and well-implemented comprehensive tax reform, which in turn will give us confidence that such a future will happen.
Joshua Uyheng is a researcher of Action for Economic Reforms.
