DOF airs concern over 2-tier tax on sugary drinks

MANILA, Philippines -  The Department of Finance (DOF) raised concerns yesterday over the two-tier tax system on sugar-sweetened beverages under the tax reform bill approved by the House of Representatives.

In an interview, Finance Undersecretary Karl Kendrick Chua said the two-tier tax system on sugary-laden beverages as provided under House Bill 5636 would be a discriminatory trade barrier, and as such, a violation of agreements under the World Trade Organization (WTO).

House Bill 5636 or the Tax Reform for Acceleration and Inclusion Act (TRAIN) —which was approved by the House of Representatives last June 1— provides that beverages with locally sourced sugar should be imposed a P10 excise tax per liter, while those with foreign sugar should be imposed P20 per liter capacity.

“The first problem is it is a violation of the WTO as it’s discriminatory,” Chua said on the sidelines of the Senate ways and means committee’s hearing yesterday.

Likewise, Chua also said a two-tier tax system based on the source of sugar used for such beverages would pose an administrative problem for the Bureau of Internal Revenue.

“Number two is it might be very difficult to implement because we’ll have to, for every beverage product, understand where they source the sugar. There is no way to have it done efficiently,” Chua said.

Finance Secretary Carlos Dominguez, in a separate interview earlier, likewise said the two-tier system would be “hard to implement.”

According to Chua, a two-tier system would not necessarily result in higher revenue for the government as some compliance cost and administrative cost would have to be factored in.

He said that the P47 billion estimated revenue by the DOF for the sugar excise tax does not yet factor in the two-tier tax system.

“The 47 billion is for the one-tier, we did not compute the two-tier because it is impossible, we have to ask one by one. Then they’ll say mostly domestic or mostly foreign, and then we have to verify. Unlike the per liter anyone can check it instantly,” he said.

The finance official expressed optimism the provision on the sugar excise tax may still be corrected in the Senate and the bicameral committee.

Meanwhile, Chua during the same interview said the DOF is open to proposals which seek to lower the P10 per liter excise tax on sugar-sweetened beverages, as long as lawmakers retain the original CTRP package of the DOF.

“The difference between our original and the House-approved bill is around P30 billion....If we are able to bring them back then there is room to adjust. It is always a package,” he said.