PH seen to violate global trading rule with planned sugar tax on beverages

The Philippines would be violating a global trading rule if it pushes forward with a sugar-sweetened beverage tax that doubles the rate on imported sugar in favor of its locally sourced counterpart, sending the “wrong signal” to foreign investors and trading partners.

Alexander Feldman and Ernest Bower, top officials of the US-Asean Business Council and Center for Strategic and International Studies (CSIS), issued the warning in a joint statement on Wednesday.

Congress is consolidating two versions of the first package under the Duterte administration’s tax reform program.

Both organizations back both versions for the most part, but said the SSB tax would send a message to foreign investors “that the Philippines is willing to violate global trading rules.”

While they did not name which particular bill they have reservations with, their warnings describe the SSB tax as outlined in House Bill No. 5636.

“The SSB provisions call for a doubled tax rate on sweeteners that are produced largely outside the Philippines but play a critical role in meeting Filipino demand for high quality and affordable food and beverage products. If passed as drafted, the legislation will hurt Philippine competitiveness at a time when other countries in ASEAN are stepping up their competitiveness for foreign direct investment,” they said.

“Thus, this discriminatory SSB tax provision sends the wrong message at exactly the wrong moment. If passed, the law will draw complaints in the World Trade Organization (WTO) and have a substantial chilling effect on foreign direct investment (FDI),” they added.

They echoed the sentiments of local business groups that opposed the SSB tax because of its impact on consumers, as well as the possible backlash on jobs, consumer choice, and investments.

HB 5636 wants to slap P10 per liter for SSBs using local sugar and P20 for those using imported sugar. This, experts said, would violate a rule in the World Trade Organization that prevents taxing imported products at higher rates to favor domestic ones.

On the other hand, Senate Bill No. 1592 exempts some beverages, including all forms of milk and some forms of coffee (particularly ground and 3-in-1) because of their nutritional value and patronage among the masses, respectively.

Furthermore, the Senate bill lowers the rate to P4.50 per liter for beverages using caloric and non-caloric sweeteners, and imposed a tax of P9 per liter for beverages using high fructose corn syrup. The bill did not distinguish local sugar from its imported counterpart.

While both organizations made no mention of SB 1592 in particular, they hinted support for the bill passed in the upper house of Congress.

“We know that the judicious legislators  will reconsider and reject these provisions in the TRAIN bill—moving instead to adopt measures that treat all sweeteners equally regardless of source or origin,” they said.

“We believe that choosing a fair and equal tax policy for SSBs will send the right message to American and other foreign investors—and the Philippines on track to grow economically while continuing to attract investment which will help propel this growth benefiting all Filipinos,” they added.