For many industries, the year ahead would bring lots of changes in the way business is done—and not all of it is good.
Malacañang recently peddled its “biggest Christmas gift” to the country, saying it would benefit 99 percent of current taxpayers. Yet, it’s a gift rejected and even derided by some.
Last December 19, President Duterte signed Republic Act No. 10963, or the Tax Reform for Acceleration and Inclusion (Train) Law amid reservations from some members of the business community.
While the President vetoed some provisions of the first package under the administration’s banner tax program, much of it remains intact: a lower personal income tax for many Filipinos, but higher consumption taxes starting next year.
All throughout the haggling in Congress, some business groups have warned of the implications of the first package. While they agree with the intent of giving Filipinos a higher take-home pay, they wonder: at what cost?
For one, the Train Act will increase consumption taxes on sugar sweetened beverages (SSB) and cars, among others. While an increase in excise taxes seemed inevitable, the question for the most part of the year was the extent of the increase.
The automotive industry, which expected to cap the year with 450,000 unit sales, was still figuring out how much it could sell next year, especially now that cars would be more expensive. The general comment among company officials was that higher taxes would hurt demand.
Toyota Motor Philippines Corp. (TMP), the largest car company in the country, was already expecting a dip in sales. TMP president Satoru Suzuki said he was seeing a 5-10 percent decrease in total company sales in 2018—hoping only for a recovery in the following years.
Car companies were, in fact, bracing for higher excise taxes on all price brackets. Yet, in the new law, more affordable cars like Toyota’s Vios would be facing higher taxes. Luxury cars, on the other hand, would pay less taxes.
“I cannot understand the intention why [they would] motivate the rich people,” Suzuki said.
The beverage industry would also bear the brunt of the law.
The Train Act would impose a P6/liter tax on beverages using caloric and noncaloric sweeteners and P12/liter on beverages using high fructose corn syrup (HFCS).
The Beverage Industry Association of the Philippines (BIAP) wanted the tax rates to be based on sugar content, instead of a per-liter basis.
Pepsi-Cola Products Philippines Inc., which is behind one of the most popular beverage brands in the country, would reformulate its soft drinks mix next year, saying this would help the company save on costs. From the current formula of 60-percent sugar and 40-percent HFCS, the company would soon shift to using 100-percent sugar.
And then there’s also the higher coal excise tax, a move which many feared would further aggravate the already struggling business environment. This provision was absent in the House of Representatives’ version, appearing only in Senate Bill 1592.
Even the Philippine Chamber of Commerce and Industry (PCCI), which has been generally supportive of the Train initiative, opposed it.
George Barcelon, the outgoing president of the country’s largest business group, said that an increase—no matter the extent—should be avoided because the country was already “poorly situated” in terms of the competitiveness of its power costs.
Congress has agreed to raise the coal excise tax in the first year of implementation to P50 a metric ton from the current P10, and then P100 in the second and P150 in the third and succeeding years.
“Many have left some years ago due to high and unpredictable power costs and policies,” Barcelon had said.
He said he can only hope the implementation period would give the business community more time to adjust, say a five-year period instead of three.
The American Chamber of Commerce of the Philippines (AmCham) and the European Chamber of Commerce of the Philippines (ECCP) have voiced out the same concerns.