THE Department of Finance (DoF) said higher excise tax on sugar sweetened beverages can generate an additional P47 billion in revenue in the first year of implementation.
The DoF issued the statement during a House Committee on Appropriations hearing on Wednesday. The panel is conducting hearings on a substitute bill that consolidated House Bill (HB) 4774 and other similar bills.
HB 4774 contains Package One of the Comprehensive Tax Reform Program (CTRP) that aims to lower personal income tax rates, adjust excise taxes on oil and automobiles and broaden the value-added tax (VAT) base while retaining exemptions for senior citizens and persons with disabilities.
In the same hearing, the House Committee on Ways and Means also approved amendments to the substitute bill including a P10 per liter additional excise tax on sugar sweetened beverages, a measure originally proposed under Package 3 of the CTRP.
Sugar sweetened beverages are non-alcoholic and contain caloric sweeteners or added sugar or artificial and non-caloric sweetener such as soft drinks, fruit drinks, sports drinks, sweetened tea, coffee and energy drinks.
“For the sugar-sweetened-beverage tax as currently proposed, the P10 per liter (as indexed to inflation) will yield P47 billion in the first year of implementation,” Finance Undersecretary Karl Kendrick Chua, said during the hearing.
Eighty-five percent of the tax take will be allotted to government priority projects to be determined by the Department of Budget and Management (DBM) and 15 percent to sugar farmers.
“Our proposal is instead of itemizing and indicating specific breakdowns of the proceeds of revenues to fund important programs, is first to only specify what are the priority programs, without mentioning the percentages. This will allow the departments involved—the DBM and Congress—to expound in the budget what this allocation should be,” Chua said.
The approach will allow the government agencies some flexibility in prioritizing the funds.
“There are also concerns from stakeholders who may be affected, such as farmers and sugar-producing provinces. In the spirit of the sin tax, wherein there is an allocation to benefit those who will be affected, we are not objecting to any proposal that would allocate some amount to the affected farmers in the sugar producing regions, provided that these funds are properly accounted for and transparent and would be used to benefit and to expand their livelihood programs,” Chua noted.
Foregone fuel tax revenue
Among the modifications in the substitute bill is the non-indexation of the fuel excise tax rates to inflation after the three-year staggered rate increase is completed in 2020—a change in the original measure which is currently opposed by the DoF.
In a separate statement, Chua said he hopes the provision on indexing the fuel excise tax to inflation would be retained in the final version of the bill to avoid losing a substantial amount in annual revenue.
The fuel excise taxes that have been stagnant in the past two decades has cost the government an estimated
P145 billion a year in foregone revenue or about 1 percent of the gross domestic product, Chua said.
The government has proposed to correct this by adjusting the fuel excise tax rates, along with the proposal to significantly lower personal income taxes to offset the impact of the higher taxes on petroleum products.
Contrary to the erroneous perception being foisted upon the public by certain quarters, higher oil taxes will be absorbed mainly by affluent families, and not the poor and low-income taxpayers, because the wealthy, or the country’s top 10 percent, consume 51 percent of oil products, while the top 1 percent use up 13 percent, or the same share as those in the bottom 50 percent of the population, Chua noted.
“The extra income from higher fuel taxes, which will be collected mainly from rich consumers, will be used for targeted transfer programs and other social welfare benefits for the poor, including a modernization program for public utility drivers,” he said.
Public utility (PU) drivers and operators will benefit from the proposed modernization program and get to earn more by shifting to better, environment-friendly engines that consumes less fuel, according to the DoF.
The savings from lower fuel use can reach P935 billion between 2018 and 2027, more than fully offsetting the tax, Chua noted, citing data from a Clean Air Asia study.
He said the cheap cost of gasoline and diesel contributes to wasteful use of fuel that aggravates traffic congestion which costs an estimated P2 billion in business losses per day and a 33 percent drop in productivity in Metro Manila alone as most commuters spend an average of 3 hours on the road.
Reducing air pollution from vehicle emissions by modernizing public utility vehicles will lead to savings of P16.7 billion in health care and P1.1 billion in environmental-related damages per year.
“After 15 years of operation, each public utility jeepney, for instance, will save P3 million in fuel, health, and environmental costs. Minibus and bus savings are higher at P8 million and 12.7 million, respectively,” he said, citing the Clean Air study.
“The entire program can generate P750 billion in fuel, health, and environmental savings in present value terms,” he added.
He said reforming the fuel excise tax system is “highly progressive” because “we would be removing subsidies on the fuel consumption of the top 10 percent of households with monthly incomes of around P115,000 and above who consume almost 51 percent of fuel in the country.”
The top 1 percent of households, with a monthly income of around P293,000 each, account for 13 percent of the fuel consumption in the country.
Rather than indirectly subsidizing the rich, the additional revenues to be collected from the fuel excise tax would be better spent on targeted transfer programs for about 10 million poor and vulnerable households that would be affected by the tax hike and earmarked for infrastructure projects to reduce traffic congestion and pollution and raise workers’ productivity.