On prices of basic goods: Competition to soften impact of new tax law

CEBU, Philippines — Competition is going to be a key factor in possible price increases of basic goods with the implementation of the new tax law, said the president of the Philippine Retailers Association-Cebu.

Robert Go, owner of Cebu-based supermarket chain Prince Retail, said the foreseen price hikes would likely not be "abrupt" because of competition factor.

"When retailers have old, lower costs, they tend to sell products at old prices while waiting competitors to move up prices, then they will also slowly move up," Go told The FREEMAN yesterday.

The retail official said that competition plays a very vital role in how retailers price their products.

"That is the beauty of competition. It help stabilizes the market and promotes lower prices as much as possible," he explained.

The PRA-Cebu president believes any price increase in consumer goods due to the newly implemented tax law would not be abrupt as most retailers consider competition and fear their market share would be eaten up.

"Retailers are also afraid they might lose loyal customers," Go said.

"They will never jump prices abruptly for competition might get market share. Retailers likewise never want customers to feel sudden increases," he added.

Go echoed the initial assessment of the Department of Trade and Industry that the impact of the Tax Reform for Acceleration and Inclusion (TRAIN) Act on prices of basic goods would be minimal.

"Yes because basic goods such as rice, oil, fish, meat and chicken are not directly taxed under the TRAIN. These are in itself not taxed. The effect would come from gasoline increases which could directly affect logistical cost, delivery cost, labor and secondary cost," the businessman explained.

"These effects have not come yet and will slowly increase as fares eventually increase and car truck rates increase," he said.

He cited that what are directly affected by the TRAIN Law are sugary drinks such as cola and sweetened juices.

"These are directly affected. Also cigarettes and spirits such as rums, whiskey, brandy which comprises 10 percent of the consumption of the masses," the Cebuano retailer said.

"So increases are selective. Basic goods are not directly affected yet since they are affected indirectly in terms of the adjustment on cost of doing business but not on the items itself," Go further explained.

The DTI earlier allayed the fears of consumers on the impact of the TRAIN Act on the prices of basic commodities.

“While TRAIN is perceived to possibly increase the prices of products of basic necessities and prime commodities (BNPC) in the market, DTI’s initial assessment of applying the excise tax shows only minimal impact on the prices of basic and prime goods,” Trade Secretary Ramon Lopez said in an earlier statement.

Lopez assured the agency is continuously monitoring market prices to ensure that any increase will be nominal.

The products under the BNPC that DTI monitors include canned sardines, processed milk coffee, detergent and laundry soaps, bread, instant noodles, canned products like luncheon meat, meat loaf, and corned beef, toilet soap, and cement.

The trade chief said the DTI through its Consumer Protection and Advocacy Bureau (CPAB) evaluated the possible effects of the new tax rates on basic necessities and prime commodities, and found that it would cause minimal impact as most manufacturers would opt to absorb the increase for fear of losing market share.

The newly approved TRAIN Law, the first package of President Duterte's Comprehensive Tax Reform Program (CTRP), seeks to lower personal income taxes, increase excise tax on fuel products, and impose tax on sweetened beverages, among others.

For diesel, a P2.50 tax per liter will be imposed this year, while there will be increases of P1 for LPG and P7 for LPG.

Sweetened beverages such as juice drinks, sweetened tea, all-carbonated beverages, flavored water, energy and sports drinks, cereal and grain beverages, and other nonalcoholic drinks that use caloric or non-caloric sweeteners will be taxed P6 per liter.

Meanwhile, P12 per liter will be taxed for those that contain high fructose corn syrup (HFCS).

All milk products, 100 percent natural fruit and vegetable juices, meal replacement, and medically indicated beverages, as well as instant coffee are exempted from this excise tax on sugar.

“The TRAIN law should not immediately affect the prices of basic necessities and prime commodities because retailers still have inventories before the tax reform law took effect. As such, we encourage consumers to report to DTI retailers who are already increasing their prices using the implementation of the new tax reform law as a reason,” Lopez said.

Business establishments that will commit illegal acts of price manipulation, specifically profiteering, shall be imposed a fine of not less than P5,000 and imprisonment for 5-15 years. (FREEMAN)