Soda Bill: The (un)sweet story

In an effort to create a rehabilitation fund for calamity victims and at the same time curb the consumption of softdrinks and carbonated drinks, the House of Representatives passed House Bill No. 3365, otherwise known as “An Act Imposing a 10 Percent Ad Valorem Tax on Softdrinks and Carbonated Drinks by Inserting a New Section in the National Internal Code, as amended.”  House Bill No. 3365 imposes a 10 percent ad valorem tax on softdrinks and carbonated drinks sold in bottles and other tight containers. This extra levy will be on top of the 12% value-added tax already imposed on the said consumer goods, and will cover soft drinks, soda and soda pop, fruit drinks and punch, sports drinks, sweetened tea, coffee drinks, energy drinks and all non-alcoholic ready-to-drink beverages.

Said bill was created in response to the devastation brought about two Typhoons Santi and Yolanda in 2013. As a revenue-generating bill, it is expected to generate revenues estimated at P10 billion. The amount collected shall be designated as a rehabilitation fund for calamity victims for programs such as livelihood development, mass housing, road construction and other infrastructure projects on municipalities, cities and provinces severely affected by natural calamities.

Sugar industry leaders oppose the imposition of an ad valorem tax on softdrinks and carbonated drinks as it will adversely affect the income of sugarcane farmers and hamper the development plans proposed for the sugar industry. Further, sugar production will be affected as sugar producers cannot sustain a reduction of demand due to reduced purchases of refined sugar. Thus, sugar farmers pose to be disadvantaged by the new tax.

Opposition also heavily comes from the softdrink companies, as the increase on the price of sweetened and carbonated beverages for an average Filipino consumer will result to a drop in consumption and a correlative drop in their sales. According to the Beverage Industry Association in the Philippines (BIAP), a decrease in sales of the beverage industry has a multiplier effect on other allied industries such as packaging, trucking and retail. Among the consequences cited by BIAP are reduced sales, job losses and increase on beverage prices, making it more expensive for the average Filipino consumer.

Meanwhile, House Bill No. 3365 is likewise a health bill, and health advocates laud the legislators’ move to promote good health and combat obesity. Studies show that excessive consumption of sweetened and carbonated drinks increase the risk of developing health problems such as blood sugar disorders, obesity, diabetes and other related diseases. The bill’s proponent Nueva Ecija Rep.  Estrellita “Ging” B. Suansing said the additional tax was based on studies cited by the World Health Organization showing that raising prices by 20 percent would reduce consumption by 24 percent.

The new bill also aims to create more awareness for the general public on the adverse effects of excessive consumption of sweetened and carbonated beverages and hopefully curb their consumption thereof. As a result, the beverage manufacturers will be forced to make healthier alternatives to their current products.

However, there seems to be uncertainty as to whether obesity and other health problems can be directly linked to softdrinks consumption. There appears to be no specific study directly identifying softdrinks as a main contributor to a person’s obesity and other lifestyle problems. Expectedly, softdrinks companies allege the bill is discriminatory and will not help solve the country’s obesity challenge.

With the Congressional sessions coming to a close in the next few months, we will witness whether this bill will pass scrutiny come 2016. And whether as revenue or a health bill, it is imperative the average Filipino consumer make informed choices on their health and lifestyle. Maybe there is a sweet side to the story after all.

Ana Francessca A. Reyes is a supervisor from the tax group of KPMG R.G. Manabat & Co. (KPMG RGM&Co.), the Philippine member firm of KPMG International. KPMG RGM&Co. has been recognized as a Tier 1 tax practice, Tier 1 transfer pricing practice and Tier 1 leading tax transactional firm in the Philippines by the International Tax Review.

This article is for general information purposes only and should not be considered as professional advice to a specific issue or entity.
The views and opinions expressed herein are those of the author and do not necessarily represent the views and opinions of KPMG International or KPMG RGM&Co. For comments or inquiries, please email [email protected] or [email protected].

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