Sugar tax on beverage can be inflationary

THE proposed tax on sugar in beverage is a Trojan horse of sorts that will hit the consumers and retailers more than the beverage industry, executives of Coca-Cola Femsa in Mexico City warned.

But one thing it will not bring on is a change in the drinking habits of the consumers nor an increase in revenues for government.

The Congress is presently deliberating on imposing excise tax on sweetened beverages as proposed in House Bill No. 292, which incidentally includes all other types of sweeteners, aspartame and high-fructose corn syrup included.

Coca-Cola Femsa chief executive officer John Santa Maria pointed out to a group of media executives at their Mexico City office that in Ecuador, where a 30 percent tax on revenues for sweetened beverages was levied, the market simply shifted to artificial sweeteners, which drove sugar prices down. In Philadelphia, United States of America, where a similar tax was made, the immediate effect was on the retailers and the distributors, who started losing consumers.

“This is not Philadelphia, this is the Philippines with a lot of potentials to go out there. There’s a lot of sari-sari stores that depend on beverage sales. That will be very, very bad not only for our industry but for our retail accounts,” Santa Maria said.

“Every place you see taxes on beverage industry, everybody reformulates. And I think it will be disingenuous that the company is going to pay. The people will just walk away from that ingredient. Unfortunately that is very short-sighted,” he said.

Incidentally, Coca-Cola Femsa maintains a research and development unit that continuously develops products and the way to package these to reach the broadest mass of consumers.

In a visit to their highly-restricted laboratory, it was learned that last year alone, the R&D unit approved 300 new formulas covering regulation, innovation, and productivity, where new beverages fall under innovation and reformulation falling under regulation.

“In the Ecuador example. This is a perfect example of lose-lose situation,” said José Ramón Martínez, Corporate Affairs Director Of Coca-Cola Femsa, in the same gathering. “The real revenue collected is 22 percent of the goal. The industry was suffering as the revenue was suffering.”

“If you think of what’s going on in Ecuador, the consumers get hit, the retailers get hit and the government brings in revenues that are lesser than they expect to,” Santa Maria added.

Worse, it can be inflationary because it’s the consumers that get hit first, citing yet another example, this time in Mexico when government imposed a similar tax on sweetened beverages in 2014.

“It is inflationary, it has put smaller stores out of business. In Mexico, 30,000 stores closed. It creates a recession environment for the consumer,” Santa Maria added.

Jose Lorenzo Tanada, director for legal and corporate affairs of Coca-Cola Femsa Philippines, said that in their official dialogues with the Department of Agriculture (DA), they perceive that DA itself realizes that this proposed tax will impact more on the sugar industry than foreseen.

“It is not just our concern, it is a concern between ourselves and the sugar industry,” Tanada said, referring to the whole beverage industry and not just Coca-Cola.

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