The impact of the proposed taxes on sugar-sweetened beverages on ordinary consumers has been highlighted by government officials and industry experts alike, but its implication on the country’s economy can even be more far-reaching. As the Tax Reform for Acceleration and Inclusion bill reaches the bicameral conference committee of Congress—in time before their December 16 recess—more quarters are sounding the alarm.
Already disastrous for the common consumer, the SSB and what it signals in terms of government policy is also worth scrutinizing.
In particular, the new slew of taxes in spirit seem to overlook the consumers, an important engine for the domestic economy, and for good reason: they want lower prices for their foods and drinks and, more crucially, the right to choose what they consume. If passed, however, the new law would not only raise prices of key commodities for Filipinos. It would restrict choice and, much worse, dampen overall investor sentiment.
Reduced investments, of course, translate to lost jobs and, if unabated, could precipitate a cycle of sending a harmful message to foreign investors that the Philippine policies are too volatile and has little respect for global trading rules in favor of envisioned revenues and half-baked health-related conclusions. As it is, the Philippines lags behind its neighbors when it comes to Foreign Direct Investments, a position that is bound to worsen at a particularly important juncture of increasing regional integration.
After all, the target sweeteners of the doubled tax rates are produced largely outside the country but nevertheless play a critical role in meeting Filipino demand for high quality and affordable food and beverage products. This means that such bold policy decision is a strike against Philippine competitiveness, which is anchored on, among other things, a stable and pragmatic tax and fiscal environment.
It is not unthinkable, for instance, for the discriminatory tax provision to draw complaints in the World Trade Organization, creating a chilling effect on what should be a vibrant and accessible investment climate. The Department of Foreign Affairs itself has warned that the two-tier SSB tax structure can be considered discriminatory under WTO rules. Thus, the bill, in attempting to solve problems like regressive taxation and obesity, seems to create more problems and at a scale far larger than its framers perhaps imagined.
It would do well to learn from lessons from other countries’ dalliance with something similar. Attempts at taxing SSBs in countries like Indonesia, Mexico, Denmark, and cities like Chicago, Philadelphia, and others have virtually crippled beverage manufacturing industries, resulting in significant job losses and loss of revenue for small businesses. The backlash against politicians who favored the taxes was also considerable. Worse, the intended revenues from the additional taxes rarely reached expected levels.
The impact on a country like the Philippines might be even more dire. Beverages constitute one of the key export sectors identified in a key government plan, and the imposition of such an exorbitant tax will unsurprisingly hamper its further development. The domino effect is feared to extend to the agricultural sector and the beverage and food processing sectors, all the way to the neighborhood sari-sari stores and carinderias.
The tax, then, as disruptive as it is intended to be, can signal a broader policy that doesn’t bode well for the entirety of the country’s investment climate. The benefits of FDIs, of course, go beyond job creation, although that is important. Attracting the world’s best companies also translate to the transfer of technologies, the development of communities, and the improvement of infrastructure.
The message that the SSB tax sends therefore is one of regression at a time when the rest of the world are increasingly integrating. The Philippines, our legislators hopefully realize, could ill afford to be left behind. If they don’t, get ready for more expensive times.