June 16, 2017 8:43 pm JST

Duterte's tax bill faces uphill battle in Philippine Senate

Lawmakers sour on sugar tax, complain levies are regressive

CLIFF VENZON, Nikkei staff writer

A young boy walks along bottles of soft drinks after buying clear soda at a store in suburb Manila. The government plans to impose hefty excise tax on sugar-sweetened beverage, a measure which a Philippine lawmaker called anti-poor. (Photo by Kimberly dela Cruz)

MANILA -- Philippine President Rodrigo Duterte's tax reform bill is running into resistance in the Senate, threatening to eat away at the extra revenue that he had hoped would bankroll his ambitious infrastructure buildup.

The first of five pieces of legislation that comprise the Comprehensive Tax Reform Program, the Philippines' first major tax overhaul in 20 years, made it through the lower house of Congress on May 31, with over 80% of lawmakers voting to pass House Bill 5636.

The tax package calls for personal income taxes to be slashed. Higher excise taxes on the purchase of cars, petroleum products and sugary drinks, plus a value-added tax on public housing, are intended to make up for the lost revenue.

House of Representatives lawmakers retained tax exemptions for the elderly and cooperatives, bringing the projected net revenue gain to 133.8 billion pesos ($2.68 billion), less than the 157.2 billion pesos, or 0.9% of gross domestic product, forecast in the original tax bill proposed by the Finance Department.

The Senate may slash other taxes when it tackles the bill in July.

At a public consultation on Thursday, some lawmakers were critical of the tax on soft drinks -- a 10 peso per liter excise tax on beverages sweetened with sugar. The proposed levy rises to 20 pesos per liter if imported sugar is used. 

"We find it high," said Sen. Juan Edgardo Angara, chairman of the Ways and Means Committee, which handles tax bills. He proposed a tax based on sugar content, rather than volume, if the government's intention is to curb obesity, diabetes and other diseases tied to excessive sugar consumption.

Coal, not cola

Committee member Sen. Juan Miguel Zubiri said the proposed tax on sugary drinks should be cut in half. "It's too burdensome for the poor, the main consumers," he said. He said lost revenue should be recovered through taxes on other products, such as coal and other fossil fuels.

Prices for sugared drinks like cola and fruit juice are expected to rise 50% if the 10 peso per liter tax becomes law.

Sen. Joel Villanueva, also a member of the committee, said he would propose an alternative, but did offer an opinion on the tax rate.

The Finance Department expects to generate 47 billion pesos from the tax on sweetened beverages, a third of the projected revenue from the first package approved by the House of Representatives. Undersecretary Karl Chua said the department is open to compromise, as long as the forgone revenues are recovered elsewhere. He added that taxing products based on sugar content rather than volume would be difficult.

He also voiced opposition to the higher levy on imported sugar, which was inserted in the version proposed by the House of Representatives, saying the provision may violate international trade agreements.

The Senate earlier held public consultations on the proposed excise tax on cars, which an auto industry group called "unreasonable."

Angara said the Senate aims to finalize its version of the bill by September. A joint congressional panel will then convene to reconcile conflicting provisions. That horse-trading session could further erode revenue gains.

Angara said lobbying from the Finance Department and beverage makers was already "intense." Adel Tamano, Coca-Cola Philippines' public affairs chief, called the sugar tax "discriminatory." Jika Dalupan, vice president for public affairs at Pepsi-Cola Products Philippines, said the bill would "kill" the industry.

Other revenue-raising measures in the first tax package are also under fire. Zubiri said that exemptions for socialized housing units should be retained and that the excise tax on petroleum should be eased. "We in the Senate are more sensitive to the popular opinion," Zubiri said, adding that many of his colleagues on the committee feel the same way.

The Finance Department aims to implement the first batch of new tax measures next year to support Duterte's social and infrastructure programs.

Duterte plans to spend 8.4 trillion pesos during his six-year term to usher in what he calls a "golden age" of infrastructure. By 2022, his last year in office, he plans to nearly double infrastructure spending to 7.4% of GDP and bring the share of Filipinos living below the poverty line down to 14% from 21.6% in 2015.

The success of the first package could affect later ones, including proposed corporate income tax cuts, rationalization of fiscal incentives, higher excise taxes on tobacco and liquor, and a gaming tax imposed on local gamblers, similar to a measure taken in Singapore. 

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