New tax to cover junk food, soft drinks

THE DEPARTMENT of Finance plans to package not only as a revenue-generating but also as a health measure the plan to slap a tax on so-called “fatty food.”

“The idea is to have all the existing bills that want to tax high sugar and unhealthy products like junk food and soft drinks included in the package,” DOF spokesperson Paola Alvarez told the Inquirer.

The Duterte administration’s tax policy reform program included proposals to impose a fatty food tax, a carbon tax, a casino and lottery tax, mining taxes as well as a luxury tax on cars, jewelry and yachts.

The so-called “sin” tax on tobacco and alcohol products, packaged as a health measure when passed during the Aquino administration, will also be revisited, alongside a scheduled review this year of its implementation since 2013.

This consumption tax package will generate P109.4 billion in revenues. By 2019, the mining tax will generate P3.5 billion; luxury tax, P7.7 billion; “sin” tax, P38.2 billion, and P20 billion each from fatty food tax, carbon tax, and lottery and casino tax, according to rough estimates made by the DOF.

This is on top of the plan to levy a P5-a-kilo excise tax on sugary products, including domestic raw sugar, refined sugar as well as imported sugar and sugar substitutes, which will result in fresh revenues worth P18.1 billion.

The proposal to slap higher taxes on sweetened beverages—although music to the ears of health advocates and government fiscal managers—is seen dampening the earnings prospects of key producers of branded consumer goods and sugar in the country.

In the last three weeks, shares of Gokongwei-led Universal Robina Corp. (URC) have declined by 11.5 percent, partly due to tax concerns.

“There are growing concerns over the short- to medium-term outlook for earnings in URC because of the planned tax on sugary beverages, impact of the Snackbrands (a leading snack food manufacturer in Australia) acquisition and surprise weakness in Vietnam beverage sales in the second quarter 2016,” said Jose Mari Lacson, head of research at ATR Asset Management.

“In the near-term, investors will still have to reassess these developments in terms of their valuation of the company,” Lacson said.

Last July, a bill has been filed in Congress (House Bill 292) by Sultan Kudarat Rep. Horacio Suansing Jr. and Nueva Ecija Rep. Estrellita Suansing to impose an excise tax of P10-a-liter on sugar-sweetened beverages. This was to promote public health and wellness while raising additional revenues for the government.

The proposal has been supported by Finance Secretary Carlos Dominguez, who mentioned the plan to raise taxes on sweetened beverages on several occasions.

Renato Salud, senior vice president for corporate affairs at URC’s parent conglomerate JG Summit Holdings, echoed the sentiment of the Beverage Industry Association of the Philippines (BIAP) on the matter: “To comment on House Bill 292 will be premature at this time. We remain open to a dialogue with our stakeholders in government for any of the administration’s plan on tax reform.”

Joseph Roxas, president of Eagle Equities Inc., said the proposed sugar taxes would affect listed consumer companies like URC and Pepsi Cola Products Philippines Inc. (PCPPI) as well as sugar producers like Victorias Milling Corp. and Roxas Holdings Inc.

Although the tax is likely to be imposed on the consumption rather than the production of sugar, Roxas said the production side would likely suffer if consumption were to decline because of the additional tax burden.

However, Roxas said it was URC that had felt the pinch from the policy proposal in recent days because this company had a much bigger institutional investor base compared to the likes of Pepsi, Victorias and Roxas Holdings.

URC is valued by the stock market at P391.6 billion, declining from P442.74 billion about three weeks ago.

When asked how it would brace for the impact of higher sugar prices, Pepsi, for its part, likewise echoed the BIAP stance that it would be “premature” to comment but the industry would be open to dialogue with stakeholders.

The debate on higher taxes on sugar products has gone global as several populous countries in the region have indicated plans to slap higher taxes on sugary food and drinks to combat obesity and raise additional government revenues. Apart from the Philippines, India and Indonesia are studying similar levies alongside Great Britain.

The International Council of Beverage Associations (ICBA), based on an offshore report, has commented on the proposed tax on sugary products in India, the Philippines, Indonesia and Britain as follows: “While we understand that there are discussions occurring in those countries, the bottom line is that taxes do not improve public health in any country.”

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