Tax attack? Philippines considers higher sugar levy and new ‘junk food’ tax to offset COVID-19 impacts
This additional taxation was proposed under the Philippine Program for Recovery with Equity and Solidarity (PH-PROGRESO) draft proposal submitted last month by the Philippines Department of Finance (DOF) as part of a ‘Phased and adaptive recovery approach’.
According to the proposal slides, which FoodNavigator-Asia has viewed, these fall under what DOF deems to be ‘Targeted tax incentives’, and are expected to be part of the country’s ‘Recovery Stage’ from COVID-19 which is expected to take place from June 2020 to December 2020 before moving to a ‘Resiliency Stage’ in 2021.
“[There are] three possible growth cases [from this point], but it is hard to put an estimate right now,” said DOF.
“The first is a V-shape: quick recovery starting July 2020; the second is a W-shape: quick recovery starting July 2020 followed by a second wave of infection, and the third is a Long U-shape (valley): long recovery spanning several quarters, with likely recovery in 2022 when vaccine is developed.
“We can proactively use policies to achieve a V-shaped recovery.”
Finance Assistant Secretary Ma. Teresa Habitan also said that the priority here is to achieve sustainable growth and not make things worse.
“What we want to see, aside from a return to pre-COVID-19 growth is that the return to growth is accompanied by a deficit which is sustainable and does not damage the overall creditworthiness of the country,” she told PhilStar.
One of the taxes that the DOF hopes to adjust to achieve this recovery is that on sugar-sweetened beverages, which currently stands at PHP4.50 (US$0.09) for beverages sweetened with a caloric or non-caloric sweetener (non-high-fructose corn syrup) and PHP 9.00 (US$0.18) per litre for those with high-fructose corn syrup.
Though not yet finalised, the initial suggestion is to index or adjust this to a 6% levy based on sugar content and progress from there instead, which is predicted to add some PHP2.9bn (US$58.2m) to government funds in 2021, PHP6.4bn (US$128.5m) by 2022 and PHP10.7bn (US$214.8m) by 2023.
This is hoped to help the country recover from COVID-19 economic impacts as well as slash income taxes to help the people – but is also fraught with risk, such as whether raised taxes will fall into the right hands given that even the previous sugar tax payouts were slow to make it back to the sugar industry they were supposed to benefit.
Junk food tax
The other major food-related tax that the Philippines has in mind is a junk food tax, particularly targeting foods high in trans fats and sodium content.
This has been endorsed by the National Tax Research Centre (NTRC), which prepares tax analysis for the country. In a study dedicated to the topic, the centre described the consumption of junk food as a ‘bad dietary habit that Filipinos have developed over the years’.
“In the Philippines, the number one risk factor which drives the most death and disability combined in dietary risks. Four of the most common causes of death in the Philippines are associated with diets high in sodium Chronic kidney disease, ischemic heart disease, stroke and hypertensive heart disease,” said the study authors.
“The local salt consumption level, at around 11g salt per day, is about two times higher than the WHO recommended level of about 5g salt per day.”
The study also looked at the business aspects here, finding that from 2013 to 2017, the total gross revenues from the top 1000 corporations in the country (Top three: Nestle, Universal Robina Corporation and Jollibee Foods) engaged in ‘activities related to junk foods and fast food chains’ rose from PHP448.8bn (US$9bn) in 2013 to PHP621.5bn (US$12.5bn) in 2017.
“Taxing foods based on ingredients or sodium content is highly challenging since manufacturers can regularly update or modify the production processes of these foods, which would entail a perpetual game of government catch-up, reevaluating and altering tax rates in an attempt to keep up,” said NTRC.
“Therefore the tax should be established for entire classes of foods, like snack foods and fast foods, rather than taxing an attribute like saturated fat levels or sodium content.”
To impose taxation with real impact on public health, ‘especially for the young and the poor’, the study recommended an excise tax at the rate of 10% to 20%, which would also increase government revenue.
This suggestion has also been heavily criticised by parties arguing that it is regressive given that low-income consumers are more dependent on junk food consumption than higher-income ones, and items such as dried fish and instant noodles are very important to many.
Given this, the government’s proposal has not been as high as the suggested rates but instead proposed at 8%.
FoodNavigator-Asia got in touch with NTRC OIC Executive Director Marlene Lucero-Calubag, who explained that because NTRC is not the policy-making agency, its endorsement does not mean that the government will definitely implement this tax.
“[The junk food tax] is not the priority tax reform at the moment, and our office is more focused on Packages 2 (CITIRA) and 4 (PIFITA) for this year – That’s where we are now,” she said.