We are currently living amidst the implementation of RA 10963, also known as Package One of the Tax Reform for Acceleration and Inclusion (TRAIN). Among the TRAIN’s host of new and reformed taxes, of special note are the new excise taxes on sweetened beverages (SBs). Section 29 of RA 10963 levies a P6/L tax on drinks using caloric or noncaloric sweeteners, and a P12/L tax on drinks using high-fructose corn syrup.
Advocates of the tax, especially from the medical community, welcome it as a pro-health measure that advances better nutrition by reducing excessive sugar consumption. Critics of the tax, on the other hand, claim it is anti-poor, since (a) sweetened beverages form a significant portion of the poor’s caloric consumption, and (b) the national health crisis is one of chronic undernutrition rather than obesity.
Faced with these two positions, how does one begin to enter the debate?
Here, we review the arguments of both sides to set the record straight. When it comes to taxation — or really any policy measure — it is counterproductive and misleading to view issues in terms of simple dichotomies.
SUGAR: GOOD OR BAD?
The first point of contention revolves around the simple valuation of sugar as either good or bad.
Health advocates emphasize how sweetened beverages raise blood sugar and blood pressure levels, increase body weight and risk for dental problems, and eventually cause resistance to insulin, which is our natural way of controlling sugar levels in our bodies. In this light, raising taxes to reduce consumption sounds sensible. Meanwhile, for critics, sweetened beverages are considered the poor’s ready access to calories that will fulfill their daily requirements. The SB tax is thus framed as a regressive measure, depriving the poor of an important source of daily nourishment.
It seems to me that to finish the debate here is tantamount to shrugging one’s shoulders and saying the poor can be left to consume the empty (even harmful) calories because it’s all they have. But how do we move forward together as a nation, if we find ourselves caught between starvation and junk?
The answer is less surprising than one might think.
On one hand, the current SB tax provision already exempts the beverages most consumed by the poor, including all milk and coffee products. But more to the point: instead of simply reducing the consumption of harmful products, the government can use the funds from the SB tax to make healthier alternatives like vegetables and potable water more accessible and affordable, especially for the poor.
Since nutrition is already part of the blanket earmarks for incremental funds from TRAIN, the best course of action seems to be for the government to walk their talk in the coming months. To change deeply ingrained behaviors on a societal level takes not only the elimination of some options, but also the improvement of others, of better options.
OBESITY OR UNDERNUTRITION?
The second point of contention is that we have much smaller an obesity problem (about 6% prevalence) than an undernutrition problem. Mexico, in contrast, had an obesity prevalence of about 30% when it imposed its own sweetened beverage tax. Perhaps in this case such a measure is justified.
As I argued in a previous article, however, even if undernutrition is indeed more prevalent than obesity in the Philippines, the two nonetheless coexist in our country, with the rates of both rapidly on the rise. This has been referred to as our double burden of malnutrition.
Furthermore, in this article, it is worth reiterating that our health issues aren’t limited to issues of weight.
Increased sugar consumption has been linked to three of the top killers in our country, all of them tied to lifestyle habits instead of communicable infection: cardiovascular disease, cancer, and diabetes. In a country where health expenditures are primarily out-of-pocket, often plunging families into poverty and cycles of debt, the claim that we do not have a problem yet simply does not hold water.
Let us not hold the present hostage at the future’s expense. The urgency of one issue does not cancel out the urgency of the other.
PRO-HEALTH OR ANTI-POOR?
To this end, perhaps the key point to emphasize is that one does not solve a complex problem with a single solution: for effective reform for health and nutrition, the SB tax must be complemented by effective utilization of incremental revenues to build an entire ecosystem conducive to health and nutrition.
The notion of Pigovian taxes offers us guidance here. A Pigovian tax recognizes that individual consumption of goods may affect the broader society. This social cost is called a negative externality. The tax corrects the externality by having consumers pay for the social cost, thus reducing consumption. Furthermore, the revenue generated by the tax is ideally spent on lowering the costs of other goods or providing services that correct existing market failures. The SB tax draws on the central logic of Pigovian taxes, seeing implementation in countries all around the world.
How do we answer the question posed by advocates and critics then? Is the SB tax pro-health or anti-poor?
At this point in time, perhaps our best answer is that it is neither quite yet. But on the horizon approaches new legislation that might allow us to take a definitive stance, one that sees the tax as overwhelmingly pro-poor by being pro-health.
In September last year, the House of Representatives passed HB 5784, the Universal Healthcare (UHC) Bill, which proposes a whole-of-government, whole-of-system, and whole-of-society approach to health. It guarantees automatic “access to a comprehensive set of health services . . . which will not cause financial hardship.” All inpatient and outpatient health services will become available at zero co-payment, thus eliminating the risk of catastrophic debt poor families often experience when a family member falls ill.
In other words, by funding UHC through the SB revenues, the government will be financing health and nutrition precisely through measures that directly improve health and nutrition. Health care thus becomes truly universal by not just building sustainable safety nets that protect the poor through health coverage, but also through preventive measures that encourage healthy lifestyles even before the onset of illness.
In this way, perhaps there need not be a dichotomy at all. Done right, the SB tax might allow us to choose both health and the welfare of the poor at the same time.
Joshua Uyheng is a researcher for Action for Economic Reforms.
