State-run National Tax Research Center (NTRC) is pushing for the imposition of a 10-percent to 20-percent excise tax on junk food, which could result in an average of P36.5 billion to P73 billion in annual government revenues and also discourage the consumption of unhealthy foods.
Using data on gross revenues of manufacturers of snack products and fast-food chains, the government think tank said the proposed excise tax rates of 10 percent, 15 percent and 20 percent can give the government an average annual estimated excise-tax collection of P36.5 billion, P54.7 billion and P73 billion, respectively.
In its tax research journal Feasibility of Imposing a Junk Food Tax in the Philippines, the NTRC concluded that “the higher the tax rate, the higher the revenue that will be derived.”
“Similarly, the higher the tax rate to be imposed, the higher the increase in product price,” NTRC said adding that higher prices will then lead to limiting consumption of junk food.
Citing information from previous researches, NTRC said the suggested tax rates on healthy foods and drinks often focus on rates that average about 10 percent to 20 percent of a product cost. Moreover, the NTRC said that the rate needs to be at least 20 percent for the tax to have a significant impact on obesity and cardiovascular disease.
Aside from the tax rate, the NTRC also emphasized the importance of considering the type of tax that should be imposed, whether specific or ad valorem.
The think tank pointed out that specific taxes are easy to administer and generate predictable revenues but requires regular evaluation and adjustment so the collections could keep up with inflation. Taxing snacks, according to the paper, could also prompt manufacturers to modify their products like lowering sodium content at a minimal just so these would not be covered by tax.
On the other hand, ad valorem excise taxes automatically adjust to inflation and have a larger impact on industry profits but they generate less predictable revenues. Under this scheme, manufacturers may cut their prices to maintain volume and generate wide gaps between cheap and expensive products. This setup, however, could encourage consumers to switch to cheaper products that could be just as harmful.
Besides taxing unhealthy foods, the NTRC also recommended subsidizing healthy foods, restricting food advertising and possibly eliminating advertisements on junk foods, candies, softdrinks, fast-food meals and sugared cereal for children.
Providing more bicycle paths and recreational center to encourage physical activity can also be considered, the NTRC said.
The think tank’s recommendation of an imposition of a 10-percent to 20-percent excise tax rate on junk food is also higher than the 8-percent ad valorem excise tax being proposed by the economic team under its health “sin” tax proposal to raise revenues as the government increases its spending due to the Covid-19 pandemic.
Based on the copy of the presentation of Socioeconomic Planning Secretary Karl Chua to the House of Representatives obtained by the BusinessMirror, the proposed 8-percent ad valorem excise tax on junk food with high trans fatty acid and high sodium content would result in an additional revenue of P800 million in 2021, P900 million in 2022 and P1 billion in 2023.
Apart from this, the government is also looking at imposing a 6-percent indexation on sweetened beverage tax.
The sweetened beverage tax proposal is projected to give the government P2.9 billion in revenues in 2021, P6.4 billion in 2022 and P10.7 billion in 2021.