A Fix the fix

The Department of Finance (DOF) kicked off last Sept. 3 its nationwide “stakeholder consultations” on the proposed Marcos administration bill dubbed as ProGRESS, or the buzzword for Promoting Growth, Revenue and Equity towards Socio-Economic Sustainability. The ProGRESS bill was initiated after the penultimate State of the Nation Address (SONA) of President Ferdinand “Bongbong” Marcos Jr. in July this year.

PBBM asked Congress to provide tax relief by raising the annual personal income tax exemption threshold from P250,000 to P350,000. As calculated, such tax relief will result in savings of up to P17,500 per individual in his or her annual income tax. It likewise seeks to provide exemption to the Minimum Corporate Income Tax (MCIT) for micro and small enterprises (MSMEs) and to establish a 15 percent global minimum tax for large multinational enterprises.

The ProGRESS bill is now undergoing public hearings in the 20th Congress. Under our country’s 1987 Constitution, all tax measures must emanate from the House of Representatives. Specifically, the ProGRESS bill was filed as House Bill No.10345 principally authored by Speaker Faustino “Bojie” Dy III and presidential son, Ilocos Norte Rep. Sandro Marcos. As proposed, it will amend specific provisions of the 1997 National Internal Revenue Code (NIRC) under Republic Act (RA) 8424.

Since these proposed tax reliefs will result in government collecting lower, lesser revenues, these have to be compensated with equal if not additional sources of tax collections. Under the ProGRESS bill, the sugar-sweetened beverage (SSB) tax will be raised from the current P6 per liter to P20 for sugar and from P12 per liter to P40 for high-fructose corn syrup (HFCS).

Along with these two proposed higher tax rates were other proposed revenue-raising measures. The same bill also seeks to impose higher levies on so-called “sin” taxes on vape products and tobacco; a P150-per-kilogram excise tax on plastics, plus new tax tiers for luxury vehicles over P8 million, private sea vessels and aircraft.

These we learned from the industries directly affected by the proposed higher SSB tax rates at the Kapihan sa Manila Bay news forum last Wednesday – Beverage Industry Association of the Philippines (BIAP) president Juan Lorenzo Tañada. Speaking in behalf of the BIAP, Tañada raised alarm bells on the implications of the higher tax rates of the food and manufacturing sectors. Comprised practically by major food and beverage manufacturers all over the country, the BIAP also represents and echoes the concerns of both upstream and downstream industries in the Philippine economy.

Tañada bewailed as much as 233 percent increase in these proposed higher tax rates for SSB goods and products. Already at existing tax rates on SSB, he cited the food and beverage manufacturing sector contributes as much as $109.2 billion to the annual gross domestic product (GDP). And in terms of employment, 8.9 million jobs directly and indirectly depend on the SSB sector, including 1.3 million sari-sari stores that are the lifeline of low-income communities nationwide, the BIAP president added.

“This tax increase could not come at a worse time,” Tañada rued.

He noted the latest official government data showing inflation shooting up month-on-month by an average of 7.2 percent as of September from 6.1 percent in August. Tañada fears the latest GDP recorded for the second quarter of this year that further slowed down to 2.3 percent would take a turn for the worse. The food and beverage sector – which he pointed out is the biggest driver of economic growth – will likely resort to cuts in production and/or raise the prices of their products to pass on the burden of these projected higher taxes.

The proposed ProGRESS bill is apparently a follow through of the Tax Reform for Acceleration and Inclusion (TRAIN) Law that took effect in January 2018 when the SSB tax was first imposed. Tañada recalled the government projected to collect as much as P54 billion from SSB but the actual collections amounted only to P42 billion under the TRAIN Law, per the report of the Bureau of Internal Revenue (BIR).

The same BIR data confirmed the continuing contraction by 9.25 percent of beverage consumption in 2025 alone since the imposition of the SSB tax, he added.

“This sends a chilling effect on the prices. The manufacturers are forced to pass on the taxes. This is un-intended consequence. It is to no one’s interest for it to happen,” he warned.

Thus, Tañada called upon all government agencies concerned “to review the evidence, listen to all stakeholders and reevaluate” before Congress acts on the ProGRESS bill.

In the present form of the ProGRESS bill, senior research fellow of the Philippine Institute for Development Studies (PIDS) John Paolo Rivera conceded the proposed imposition of higher tax rates on SSB apparently was not supported by facts and data for evidence. “The evidence should dictate the policy and not the policy leading to the evidence,” Rivera pointed out.

As an attached agency of the Department of Economy, Planning and Development (DepDev), Rivera explained the PIDS is guided by the results of studies gathered from evidence of the performance of the various sectors of the Philippine economy, the purchasing power of the consumers, the need of business for predictable and stable policy environment and public policy issues on health. “We at the PIDS work on the premise to balance these varied interests of the Philippine economy,” he stressed.

“That’s why PIDS wants in-depth studies to give long-term solutions, not ‘quick fix’ but real fix long-term solutions to our national policymaking,” Rivera stressed, to highlight September being observed as Development Policy Research Month. Rivera added his voice to BIAP’s call to Congress to address these concerns on the ProGRESS bill at this stage of the legislation.

When a “quick-fix” solution is applied to a fiscal policy, Rivera warned Congress ends up amending a tax law that the lawmakers previously approved. “That’s why in PIDS, we want real fix to the problems of our society,” he assuaged the public.

Rivera wisecracked: “Otherwise, they (in Congress) will fix the fix.” Draw your own conclusions.