Tax on sugary products: A bitter pill or a sweet solution



Sugar is an essential part of every household pantry. We consume it every day through different food products—juices, coffee, cakes, candies, soda, and other products with sweeteners. The demand for sugar is expected to remain high as sugar consumption is projected to increase.

The health effects of a high-sugar diet are well known. One of the most common diseases associated with such a diet is diabetes. A Department of Health (DOH) study on the consumption of sweetened drinks shows that it is the leading cause of obesity and other health problems such as diabetes and hypertension in the Philippines. Furthermore, according to the International Diabetes Federation, the Philippines is one of the world’s emerging hotspots for the disease, with more than 4 million people already diagnosed.

What can the government do to address this situation and, at the same time, benefit from it?

At the start of his term, President Rodrigo Duterte promised to review and reform the Philippine tax system, including possibly reducing personal and corporate income taxes, which would result in a substantial loss of revenue. To recoup the expected revenue loss, the government plans to seek passage of compensatory revenue measures, one of which is the imposition of tax on sugary products.

By imposing tax on sugary products, the government will be hitting two birds with one stone: it will benefit from the increased tax collections, while consumers will presumably be discouraged from purchasing sugary products because of the increased price, thereby lowering their risk to diseases associated with high sugar intake.

Similar to the Sin Tax Reform Law on cigarettes and alcohol products, a tax on sugary products is designed to raise revenues and promote public health by discouraging consumption of products with high sugar content. And with this new tax collection measure, the government may consider earmarking funds for comprehensive programs to fight malnutrition and obesity.

According to the Department of Finance, the Sin Tax Law has provided constructive outcomes in addressing public health issues relating to alcohol and tobacco consumption. This is supported by the assessment of the National Tax Research Center (NTRC) on the Sin Tax Reform Law, which showed that it has achieved its objective of reducing the alcohol and tobacco consumption as indicated by general decreases in the volume of removals of the said products.

Considering that the Sin Tax Reform Law and the proposed tax on sugary products are both perceived as a way to protect the health of the consumers, it is possible that the effect of the implementation of the proposed tax will be similar to that of the Sin Tax.

There are other countries that are also considering the imposition of soda tax, sugar tax, or soft drinks tax to either reduce the overall consumption of sugar or to simply increase tax collection. Among these countries, the most common way of imposing the tax is on a per-sugar content basis of a can or bottle of soft drinks, which is possibly the same manner by which the Philippine government will tax sweetened beverages.

Considering the impact of the proposed tax reform on manufacturers and consumers, it is likely that it will be met with some resistance. One of the country’s largest food and beverage companies has already seen its share price decline by 11 percent over a three-week period last month. There is also anecdotal evidence that workers in the countryside, particularly fisher folk, rely on sugary drinks such as sodas for their energy boost. For these people, sweetened products aren’t leisure purchases so much as necessary—and right now, affordable—tools to get them through their working day.

In pushing its proposal for a tax on sugary products, the government should take these matters, among others, into consideration. For their part, consumers should also educate themselves to better understand the negative impact of a high-sugar diet and, hopefully, to better appreciate the benefits of this new tax proposal. In covering all the bases, the government can have a tax on sugary products that will not be perceived as a bitter pill to swallow.

The author is an assistant manager with the Tax & Corporate Services division of Navarro Amper & Co., the local member firm of Deloitte Southeast Asia Ltd.—a member firm of Deloitte Touche Tohmatsu Limited—comprising Deloitte practices operating in Brunei, Cambodia, Guam, Indonesia, Lao PDR, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam.


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