Coke multiplier effect threatened by taxes

The positive impact on the overall economy of the Philippines arising from operations of international companies like Coca-Cola will most likely decrease if new taxes are introduced.

This is the conclusion of a 2007 study conducted for Coca-Cola by Dr. Cid Terosa and Dr. Aurora Hidalgo of the University of Asia and the Pacific (UA&P).

The study titled “Business taxes and corporate income taxes play an important role in national and local socio-economic development,” noted that the Coca-Cola System in the Philippines“…is a major source of national and local taxes that help in providing basic services such as infrastructures, health and education. The activities that these taxes support generate multiplier effects across the national and local economy.”

Based on the consolidated report of Coca-Cola Bottlers Philippines, Inc. (CCBPI) total taxes and licenses paid and remitted from 2000 to 2006 amounted to about P20 billion.

However this major contribution could be lessened if additional taxes are imposed on the company. As the study explained, “value-added and excise taxes can impede the future prospects of the Coca-Cola business.

A one-percent increase in VAT may lead to lower sales and a 3.8-percent decrease in the net income of the Coca-Cola business, an increase in VAT or excise tax on the products of the Coca-Cola business will substantially reduce positive externalities brought about by its production, marketing and corporate activities because lower sales mean less production, less need for supplies, distribution etc.”

The Multiplier Effect Study shows proof that the imposition of additional taxes and other factors can certainly impede the output that Coca-Cola generates for the economy. As discussed in the study, in 2006 Coca-Cola’s multiplier effect went down to 2.20 from 2.35 in 2000. From P21.15 output generated for the economy with every purchase of a P9 bottle, the multiplier effect of Coca-Cola went down to P19.80 in the same period.

This decrease in the output of the Coca-Cola business in the Philippines (CCBPI), The Coca-Cola Export Corp., Cosmos Bottling Corp. (CBC) and Philippine Beverage Partners, Inc. (PhilBev) was caused in part by declining sales revenues, particularly for the products of CCBPI from 2003 to 2006. Coca-Cola’s lessened output reflects on its 25 production facilities and 73 sales offices all over the Philippines.

Multiplier effect pertains to the production interrelationships created between partner industries. Coca-Cola generates multiplier effects because it produces a variety of products that use inputs from many industries in the Philippines. According to the study, 61 percent of Coca-Cola’s production cost goes to industrial input providers like sugar milling and refining and manufacturing of glass containers, among others, whose businesses reflects any slowdown on Coca-Cola’s part.

Similarly, businesses which depend on sales of Coca-Cola products are adversely affected too. Millions of households are reached by the company and 803,849 retailers from Aparri to Jolo. 79 percent of the latter is made up of sari-sari stores where the major source of income is selling Coca-Cola products.

Businesses and industries are not the only ones to feel the impact. As the study discussed, “in the communities where its bottling plants are entrenched, the system employs local people, pays taxes to local governments, does business with local suppliers for goods, services and capital equipment and extends support to community-based programs.”

Coca-Cola’s community programs focus on pressing needs like education, nutrition and environment. For education, Coca-Cola through the Coca-Cola Foundation Philippines, Inc. (CCFPI) builds three-classroom multi-grade Little Red Schoolhouses (LRS) from Luzon, Visayas to Mindanao.

NutriJuice was co-developed by Coca-Cola and the Food and Nutrition Research Institute of the Department of Science and Technology. It is an orange juice drink fortified with iron, zinc, lysine and vitamins A and C aimed at contributing to the efforts to eradicate iron-deficiency anemia (IDA), a problem which hampers children’s mental and physical development.

Coca-Cola also nurtures the environment through a partnership with the World Wide Fund for Nature — Philippines (WWF). This partnership is a five-year project for the protection and rehabilitation of the Santa Rosa Water basin, a crucial water resource in the booming CALABARZON area.

After 2006, Coca-Cola’s business experienced renewed vigor through dynamic marketing drive and operational reforms which are expected to raise demand, production and sales revenues. Unhampered by additional taxes, these efforts could significantly raise the output effect of Coca-Cola, translating to better business for its industry partners, improved sales for its customers and more community assistance from the company.

“We have just started rebuilding the Coca-Cola business here in the Philippines,” said Jose Bayani Baylon, VP for public affairs and communications of the Coca-Cola System in the Philippines. “While the figures from 2006 were not promising, external barriers will only further curtail our possible growth.”