New tax on sugary drinks poses a big threat to non-alcoholic beverage segment

Philippine’s government attempt to discourage soft drink consumption and raise additional revenues by taxing sugary drinks is now threatening the entire Pesos 147 billion (US$2.88 billion) non-alcoholic beverage industry, with prices of instant coffee and powdered juice likely to shoot up by over 50% and 200% respectively.
Joan Mary Sumpio, the Regulatory Manager of Mayora (Vouno Trade and Marketing Services Corp.) which distributes the Indonesian coffee brand Kopiko in the Philippines commented that an excise tax of Pesos 10 (US$0.20) per litre of volume capacity on sugar-sweetened beverages (SSBs) will likely increase the base price of a 25g sachet of Kopiko from Pesos 5 (US$0.10) to Pesos 8 (US$0.16). It must be noted that 92% of Filipino households consume 3-in-1 instant coffee.
The House of Representatives earlier passed House Bill No. 5636, the first package of tax reforms, which includes the imposition of Pesos 10 (US$0.20) or Pesos 20 (US$0.39) excise tax per litre of SSBs such as soft drinks, sweetened tea, sweetened coffee, carbonated beverages with added sugar, flavored water, energy drinks, sports drinks, powdered drinks not classified as milk, juice, tea and coffee, cereal and grain beverages and non-alcoholic beverages that contain added sugar.
The Department of Finance hopes to raise an additional Pesos 47 billion (US$920.15 million) from taxes on sugar-sweetened beverages.
The excise tax, however, will not be imposed on milk products, infant formula, milk alternatives (soy milk, almond milk), flavored milk (chocolate milk), 100% natural fruit juice, 100% vegetable juice, meal replacement, medically indicated beverage, ground coffee and unsweetened tea. Also exempted are drinks made inside coffee shops, juice shops and made by street vendors.
“The public needs to be aware that it is not just the carbonated drink that will be impacted. There are other beverages like powdered juices and 3-in-1 coffee which really the target the C, D and E market. The poor will be affected the most,” said Shanahan Chua, Head of Corporate and Government Affairs at Mondelez Philippines Inc. which distributes Tang powdered juice in the Philippines.
The proposal is to slap a Pesos 10 (US$0.20) excise tax on beverages using pure Philippine sugar and Pesos 20 (US$0.39) on products using other sweeteners. “If you look at our product like Tang, we are going to be taxed Pesos 20 because we are a fully imported finished good. So the base price of a 25g sachet of powdered juice that could make a 1 litre drink will increase from Pesos 9 or Pesos 11 including VAT at sari-sari stores to over Pesos 30. That is about a 200% price increase,” said Chua.
Chua said an excise tax of Pesos 20 (US$0.39) per litre of volume capacity on SSBs will be the highest in the world, exceeding Pesos 9 (US$0.18) a litre in the US. Chua added about 80% of the consumers of SSBs are low-income earners. Data showed that carbonated beverages alone account for 31% of sari-sari store sales.
Chua also commened that the tax computation should be based on the sugar content and not on the whole volume of the product. “It is per litre, and our 25g sachet makes 1 litre. Regardless of how much sugar you have in the product, you are taxed at the end product. So technically, they are also taxing the water,” said Chua.
The new excise tax will definitely affect consumer demand and will hurt business. Chua said companies have introduced products in smaller packages and sachet in the country so that Filipinos could afford to buy them.
An anonymous nutritionist questioned the government’s concern by linking sweetened drinks to obesity or diabetes in the Philippines. She added that Filipinos’ per capita consumption of non-alcoholic RTD beverages was only 160 servings as compared to 600 in Mexico and 500 in the US. The Philippines also ranks 155th among 192 countries in the world obesity index compiled by World Health Organisation.
As those drinks become more unaffordable, there is a risk that consumers will shift to ‘informal products’, added Chua. These are products sold by peddlars and street vendors which are unregulated and without any assurance on food safety.

Manufacturers worry over proposal to impose taxes on Milk

The latest proposal to include milk products into the category of sugar-sweetened beverages (SSBs) which will be taxed Pesos 10 (US$0.20) per litre will bring these basic commodities beyond the reach of low-income consumers which may also worsen undernutrition problem faced by many Filipino children, said Elizabeth Leon-Lim, President of the Philippine Chamber of Food Manufacturers, Inc.
The Chamber said the proposed sugar tax which will include milk products is likely to increase the prices of powdered milk by 11% to 26%. Flavored milk may see a hike of around 11% to 34%.
The levy on sugar-sweetened drinks is part of the proposed Tax Reform for Acceleration and Inclusion (TRAIN) bill, the government's comprehensive tax reform program, which consolidates more than 50 tax-related measures.
TRAIN aims to provide lower personal income taxes while imposing a higher excise taxes on fuel, new cars, and sugar-sweetened beverages. Senate Bill 1408, its counterpart at the Senate, is undergoing deliberations.
The group also noted that when the UK, US and Mexico levied sugar-sweetened drinks taxes, they excluded milk and dairy products. The Chamber represents the country's major food and beverage manufacturers employing an aggregate work force of 700,000.
Major brands to be affected by the tax proposal include Alaska, Anchor, Bear Brand, Birch Tree, Lactum, Milo and Nido.
“Milk is inarguably a primary source of nutrition, the consumption of which should be supported and promoted by the government instead of curtailing it, given the rising malnutrition and undernourishment in the country,” the group added.