Republic of the Philippines

Department of Education

Region 1

Schools division of Ilocos Norte

SAN NICOLAS NATIONAL HIGH SCHOOL

Brgy. 24, San Nicolas, Ilocos Norte

RESEARCH PAPER

THE ADVANTAGES AND DISADVANTAGES OF EXCISE TAX ON SUGAR-

SWEETENED BEVERAGES

SUBMITTED BY:

Midsy Dela Cruz

Lizbeth Angel Almocera

Maria Cristina Balce

SUBMITTED TO:

Mrs. Jean Arellano

 CHAPTER I

THE PROBLEM

INTRODUCTION

Any liquid that can quench the thirst are called beverage. Beverage is any kind of

liquid. We are always taking water, Water is a beverage item. Water, tea, coffee, milk, juice,

beer and any kind of drinks item are listed in beverage items. Actually, beverage means any

kind of Liquid item. Sugar is the generic name for sweet-tasting, soluble carbohydrates, many

of which are used in food. There are various types of sugar derived from different sources.

Sugar-sweetened beverages are sweetened juice drinks, tea, and coffee, carbonated

beverages with added sugar, flavored water, energy and sports drinks, powdered drinks with

sugar, cereal and grain beverages, and other non-alcoholic drinks with sugar. SSBs refer to

non-alcoholic beverages of any constitution (liquid, powder, or concentrates) that are pre-

packed and sealed in accordance with the Food and Drug Administration (FDA) Standard

that contain sugar added by the manufacturers. Soft drinks, in particular, are drinks that

typically contain carbonated water, a sweetener, and natural or artificial flavoring. The

sweetener may be sugar, high-fructose corn syrup, fruit juice, sugar substitutes, or some

combination of these. Soft drinks may also contain caffeine, colorings, preservatives, and

other ingredients.

The proposed excise tax will make SSBs more expensive, thus reducing consumption

and encouraging the consumers to shift their purchases to healthier options. The SSB tax may

also be a good source of additional revenue for the government which will compensate for

the expected revenue loss from the proposed restructuring of the personal income tax (PIT)

under Package 1 of the Tax Reform for Acceleration and Inclusion (TRAIN).
 This study will help the consumers to understand what is the reason why they

proposed the excise tax on sugar-sweetened beverages. By this study they will know the

advantages and disadvantages of the excise tax on sugar-sweetened beverages.

STATEMENT OF THE PROBLEM

This study helps to determine the advantages and disadvantages of excise tax on

sugar sweetened beverages. More especially it seeks to find the answers to the following

questions.

1. What is your perception on sugar- sweetened beverages?

2. What are the disadvantages of increasing the price of sugar sweetened beverages?

3. What are the advantages of increasing the price of sugar sweetened beverages?
DEFINITION OF TERMS

1. CONSUMER which is adopted in this research “a person who purchases goods

and services for personal use.”

2. SELLER which is adopted in this research “a person who sells something.”

3. EXCISE TAX are taxes paid when purchases are made on a specific good, such as

gasoline. Excise tax are often included in the price of the product.

4. BEVERAGES which adopted in this research is “a beverage is any type of drink.”

5. COMPENSATE which is adopted in this research is “give (someone) something,

typically money, in recognition of loss, suffering, or injury incurred; recompense.”

6. RESTRUCTING which is adopted in this research is “a reorganization of a

company with a view to achieving greater efficiency and profit, or to adapt to a

changing market.”

7. REVENUE the amount of money that a company actually receives during a

specific period, including discounts and deductions for returned merchandise.

8. CONSUMPTION which is adopted in this research is “the using up of a resource.

 CHAPTER II

REVIEW OF RELATED LITERATURE AND STUDIES

Study on excise tax for sugar-sweetened beverages needed

According to Arado (2017)

A THOROUGH study and consultation with affected business sectors and consumers

are needed first before the implementation of the excise tax on sugar-sweetened beverages,

said Davao City Chamber of Commerce and Industry, Inc. (DCCCII).

"We'll have to really look into that in depth and maybe consult with the different sectors that

are affected because there might be some things that our lawmakers have not seen in terms of

the excise tax probably being levied on smaller consumers. I think it has to be studied in

depth before we consider an excise tax on sugar," DCCCII president Ronald Go said.

The excise tax on beverages with locally-produced sugar is in relation to the probable

implementation of House Bill 5636 or the Tax Reform for Acceleration and Inclusion (Train).

Section 150-A, in particular, says that there will be an excise tax of P10 for every liter of

sugar-sweetened beverages containing locally-produced sugar and P20 per liter excise tax for

others.

Included in these sugar-sweetened beverages are sweetened juice drinks, tea, and coffee,

carbonated beverages with added sugar, flavored water, energy and sports drinks, powdered

drinks with sugar, cereal and grain beverages, and other non-alcoholic drinks with sugar.

In earlier separate reports, DOF said Health Promotion Fund will be sourced out from the

revenues of this sugar excise tax should this be pushed through. Around 15 percent of the
amount will be given to sugar-providing provinces to improve income of sugar farmers.

The remaining 85 percent will be used for other programs of the government such as

operationalization of measure for non-communicable disease prevention, sports facilities

provision, access of potable water in public schools and public places, and nutrition labeling.

Excise tax on sweetened beverages: A sweet-not-so-sweet imposition

According to Leonardo (2018)

Excise tax on sweetened beverages (SBs) is one of the new taxes imposed under

Republic Act (RA) 10963 or Tax Reform for Acceleration and Inclusion (TRAIN) Law

which took effect last Jan. 1. The Department of Finance (DOF) along with Department of

Health (DOH) support this as part of a comprehensive health measure to curb the

consumption of SBs and address the worsening number of diabetes and obesity cases in the

country, while raising revenue for complementary health programs that address these

problems.

Sweetened beverages, as defined under the TRAIN Law, are non-alcoholic beverages

of any constitution (liquid, powder, or concentrated) that are pre-packaged and sealed in

accordance with the Food and Drug Association (FDA) standards that contain caloric and/or

non-caloric sweeteners added by the manufacturers. Simply, these are beverages that contain

high level of certain sugars that are viewed to provide unnecessary or empty calories with

little or no nutrition.

Unfortunately, the following drinks that we’ve come to love are now taxed under

Section 47 of the TRAIN Law: sweetened juice drinks and tea; all carbonated beverages (e.g.

soft drinks, etc.); flavored water; energy and sports drinks; cereal and grain beverages; other
powdered drinks not classified as milk, juice, tea and coffee; and other non-alcoholic

beverages that contain added sugar. On a positive note, products that use purely coconut sap

sugar and purely steviol glycosides (stevia leaves extract) are exempt from the excise tax on

SB. The law also excludes from the scope of excise tax all milk products, 100 percent natural

fruit and vegetable juices that do not have added sugar or caloric sweetener, meal

replacement and medically indicated beverages, and ground, instant soluble and pre-packaged

powdered coffees (including 3-in-1).

Bittersweet culmination: Tax on Sugar-Sweetened Beverages

According to Casiquin( 2017)

The Philippines, being a tropical country, usually encounters high temperatures come

summer time which fall during the months of March and April. Hence, it is not a surprise to

know that almost all Filipinos love to indulge in a variety of cold drinks to beat the heat. As a

matter of fact, a typical Filipino meal would normally include an ice cold drink such as

carbonated drinks - (more commonly known as “soft drinks”), juices and coffee.

Filipinos’ daily intake of these kind of drinks also proves that majority has an

inclination towards sweet goods and thus, showcase the myriad ways Filipinos enjoy sweets.

It is the propensity to indulge the Filipino sweet tooth which leads us to discuss an interesting

matter relating to the proposed tax on sugar-sweetened beverages.

Representatives Horacio Suansing Jr. of the 2nd district of Sultan Kudarat and

Estrellita Suansing of the 1st district of Nueva Ecija sponsored House Bill (HB) 292 titled:

“An Act Imposing Excise Tax on Sugar Sweetened Beverages by inserting a new Section

150- A in the National Internal Revenue Code of 1997, as amended” to promote public health

and wellness.
 HB 292 introduces the imposition of excise tax on sugar- sweetened beverages at a

rate of P10 per liter of volume capacity. In the explanatory note of HB 292 the sponsors of

the bill stated that this measure does not only seek to promote public health and wellness, but

also to provide additional revenue collections for our government, which will then be

allocated for the following proposed purposes: (a) 50 percent to the General Fund; (b) 20

percent to the Department of Health for provision of medicines and medical assistance for

diabetes and other non-communicable diseases through provincial and district hospitals as

well as for health and wellness promotion; (c) 20 percent to the Department of Education to

provide public schools and sports facilities access to potable water and health awareness

programs; (d) three percent  to the Department of Interior and Local Government under

the Sagana at Ligtas Na Tubig Sa Lahat (SALINTUBIG) and Grassroots Participatory

Planning and Budgeting (GPPB) Priority LGUs; (e) three percent to the Food and Drug

Administration to support the implementation of its mandate to ensure the safety, efficacy or

quality of health products; (f) two percent to the Food and Nutrition Research Institute, and

(g) two percent shall accrue to the Bureau of Internal Revenue for tax administration.

Subsequently, HB 292 was adopted and included as Section 25 of HB 5636, or

otherwise known as “Tax Reform for Acceleration and Inclusion (TRAIN)” which was

approved by the House of Representatives on May 31, 2017. HB 5636 also imposed the same

excise tax rate of P10 on every liter of sugar-sweetened beverages containing locally

produced sugar, while an excise tax at a rate of P20 per liter is imposed for imported sugar.

The Effects of a Sugar-Sweetened Beverage Tax: Consumption, Calorie Intake, Obesity,

and Tax Burden by Income

According to Malik et al., (2006); Vartanian et al.,( 2007). Vartanian et al. (2007)

found that studies with stronger methods (longitudinal and experimental vs. cross-sectional)
reported larger effects of increased SSB consumption on increased energy intake and weight

gain. Duffey et al. (2010) examined the consumption of four foods (soda, whole milk, pizza,

and hamburger) using 20-year longitudinal data and found a soda tax, without considering

other beverages except whole milk, would significantly decrease energy intake.

According to French et al., (2001); Jeffrey et al., (1994). Some studies point to

evidence of large price responses in school cafeteria experiments that cut the price of healthy

snacks and raise the price of unhealthy. Results from in-school experiments may not be

comparable in retail food markets because children have unique utility functions partly due to

limited resources and the variety of snacks in schools is restricted.

According to Fletcher et al., (2009 and 2010); Powell et al., (2009); Sturm et al.,

(2010). Cross-sectional studies investigating State-level soda taxes and body weight have

found minimal to no association.

According to McLaughlin, (2009). A plausible explanation is that sales taxes are

generally small and not displayed on the supermarket shelf, and therefore, consumers may be

unaware and less responsive when making retail purchases. Furthermore, obesity is affected

by numerous factors in addition to beverage prices.

According to Andreyeva et al., (2010); Brownell et al.,(2009); Chaloupka et al.,

(2009). Schoreter et al. (2009). The reported demand elasticities have been used to

extrapolate potential effects of a SSB tax utilized elasticities for regular and diet sodas

reported by Dhar et al. (2003) and found that a 10-percent tax on regular soda would reduce

body weight by 0.2 pounds; no other alternative beverages, however, were considered.

There are deficiencies in the reported elasticities for our evaluation. When a particular
beverage is taxed, consumers will respond by reallocating their beverage purchases among

alternative beverage choices.

According to Brownell et al., (2009); Chaloupka et al., (2009). Lacking cross-price

estimates has led researchers to rely solely on the own-price elasticity. This is a major

limitation for evaluating the impact of a SSB tax on obesity because some juices and milk

have more calories than regular sodas (USDA-ARS, 2010).

Secondly, in order to fully examine beverage-energy intake, SSBs and their low-

calorie counterparts need to be distinguished. According to Dhar et al., (2003); Pittman,

(2004); Bergtold et al., (2004), There are studies that differentiate regular and diet sodas but

to our knowledge, there has been no attempt to separate sugar-sweetened sports, energy, or

fruit drinks from their low-calorie counterparts. We specify a demand system to address the

above limitations.

Taxation of Sugar‐sweetened beverages for reducing their consumption and

preventing obesity or other adverse health outcomes

According to Chaloupka (2012); Nederkoorn (2011) understanding how changes in

health might arise, as a consequence of food taxes, can be informed by economic theory ‐

such as the expectation that consumer behaviour will change in response to price changes ‐

and comparative evidence from other taxes on consumer goods with adverse health effects.

Although appropriate energy intake ‐ based on sources like sugar ‐ is crucial for the human

metabolism, the consumption of sugar‐sweetened beverages is not necessarily required to

maintain a healthy diet (WHO 2003).

Recent controlled field studies ‐ studies that mimic sugar‐sweetened beverages

taxation in clearly defined environments ‐ have shown that increased sugar‐sweetened

beverages prices have reduced sales of SSBs and in turn may have encouraged the purchase

of food lower in energy (e.g. bottled water and non‐sweetened tea).

According to Block (2010); Epstein (2012); Wansink (2014); Waterlander (2014;

Yang (2010). These studies are usually conducted in closed or simulated environments like

cafeterias, supermarkets, or utilising vending machines within a particular compound.

According to Batis (2016); Beradi (2012); Colchero (2016); Kim (2006). Empirical

evidence is becoming available, based on data from countries or states that have already

implemented sugar‐sweetened beverages taxes. This includes research on the association

between the existence of state‐level soft drink and other high‐caloric food taxes, and the

incidence of obesity (Kim 2006).

According to Maniadakis (2013) beyond that, supply‐side changes must be considered

as well. Sugar‐sweetened beverages producers might respond to taxation in various ways

(e.g. lowering prices by offering strategic price discounts).

As a result, taxes might not be fully passed on to the consumer and this may limit the

effectiveness of a tax in improving diets In contrast, reformulation of food products as a

reaction of producers to avoid taxation may lead to lower energy density of SSB products in

general, especially with different tax rates that depend on the sugar content of beverages

(Ecorys 2014).

According to Laviada‐Molina (2016); Zheng (2015) a change in demand for and

substitution of SSBs by the consumption of more diet soda products could increase the

impact on general health, and by substituting with drinking water could lead to even greater

health benefits for the consumer (e.g. decrease in total energy intake, body weight reduction).

Often, subsidisation of healthy foods (e.g. raw vegetables and fruits) financed by revenue
gained by taxing unhealthy food is discussed. However, simultaneous subsidisation of

healthy food and taxation of unhealthy food might not substantially change consumption

patterns due to no change in total expenditure on food and total energy intake (Maniadakis

2013).

According to Brownell (2009); Fletcher (2010); Sassi (2014) this could cause an

increase in economic inequality. Despite this, people from lower‐income groups are generally

more likely to experience greater health benefits due to their greater health burden and their

higher price sensitivity, leading to lower consumption (Eyles 2012; Maniadakis 2013).

According to Lorenc (2013) if sugar sweetened beverages taxes were ineffective in

lowering consumption of SSBs, then in relative terms SSB taxes would risk the disposable

income of people with lower income more than the disposable income of people with higher

income. This could lead, in turn, to adverse health effects (i.e. intervention‐generated health

inequalities) .

AN EXCISE TAX ON SUGAR-SWEETENED DRINKS AS HEALTH

POLICY: CAN TAXATION INFLUENCE WEIGHT

According to Austin Trujillo (2015)

There are three essential themes that must be reviewed to provide context to the

discussion of how a one-cent per ounce tax on sugar-sweetened drinks may limit overweight

and obesity prevalence. The first is understanding this health issue: how it is measured and

what population are affected. The second component is the understanding of current tax

methods for taxing unhealthy foods and drinks: the use of excise taxes, taxation to deter

consumption, and taxation to decrease obesity. The third theme is the examination of the

association between sugar-sweetened drinks and obesity: is the consumption of sugar-

sweetened drinks an explanatory factor for obesity? In this chapter I will examine peer-

reviewed academic literature is it relates to these themes. I will identify gaps in the current

literature and discuss how it may affect my study. Based on my findings I will theorize the

effect a one-cent per ounce tax on sugar-sweetened drinks will have on overweight and

obesity prevalence in California. Overweight and Obese Populations in the United States As

the implementation of a tax on sugar-sweetened drinks is being used as a tool to combat

weight related health issues in adults and adolescents, it is necessary to examine

measurements and trends as they relate to overweight and obesity prevalence.

The purpose of this section is to review the literature on the association between these

components. I begin by identifying the measurements of obesity to provide context as to how

weight is categorized in related research and throughout this thesis. I will then 9 identify

trends in obesity as they relate to demographics and socioeconomic status to determine if

different populations are affected by this health issue at different rates. Definitions and

Measurements Used in Health Research “Overweight” and “obesity” have specific definitions

that are used throughout related literature to categorize an individual’s weight. The World

Health Organization developed the most common definition for obesity; it defines obesity as

a disease wherein body fat is in excess to the point health is impaired. “Overweight" is

defined as weight above what is considered normal for a person based on their height, age

and sex; wherein weight can begin to contribute to health issues (Centers for Disease Control

and Prevention, 2012). The standard unit of measurement in obesity discussions is Body

Mass Index (BMI). BMI is calculated by dividing an individual’s weight, in kilograms, by the

squared sum of the individual height, measured in meters (kg/m2 ). Adults with a BMI over

25 kg/m2 and 30 kg/m2 are considered overweight and obese, respectively. These cut points

are recommended by the National Heart, Lung, and Blood Institute and the North American

Association for the Study of Obesity, Expert Committee to provide a national consensus for
cut points (Wang & Beydoun, 2007). BMI is a correlation, it does not directly measure body

fat, thus it is possible for a healthy person to have an overweight BMI score due to factors

such as an unusually large amount of muscle mass (Centers for Disease Control and

Prevention, 2012).

The lack of data is discussed in varying capacities with authors citing such issues as

inadequate data for other racial subcategories and variations in how subgroups are defined

(Wang & Beydoun, 2007). Similar to racial and ethnic disparities, the literature fails to

provide an in depth analysis of socioeconomic variables that may be associated with

overweight and obesity prevalence. As Babey, Hastert, Wolstein, and Diamant (2010) find an

association between weight and income in California adolescents is present, it is necessary to

analyze income as well as other socioeconomic variables such as education and geographic

location to determine if such factor effect overweight and obesity prevalence in California.
 Dear Respondents,

A pleasant day to you!

We are senior high school students of San Nicolas National High School and currently conducting a research
titled “THE ADVANTAGES AND DISADVANTAGES OF EXCISE TAX ON SUGAR-SWEETENED BEVERAGES” as a partial
fulfillment of our requirements in Research I. In connection to this, may I request you to answer the attached
questionnaire.

We are hoping for your favorable response on this matter.

Thank you so much and God bless.

Researchers

Direction: Please read the questions carefully. Check the box/es [ ] which corresponds to

your answers. Answer with honesty and integrity.

1. What is your perception on sugar- sweetened beverages?

Sometimes it is quite good but too much is bad.

It is usually drinks in bonding time with friends and families.

If we drink too much, health risks may arise including obesity, tooth decay, heart

disease and diabetes.

If we are thirsty, we can replace it with water.

 They contribute a lot of empty calories, which are calories that don’t contribute any

vitamins, any minerals, anything positive to our diet.

It is a tasty treat that can be a health risk, if you're not careful.

2. What are the disadvantages of increasing the price of sugar sweetened beverages?

It can decrease the profit because of the price increase.

It is possible that the seller will not be purchasing of the sugar sweetened beverages

anymore.

It leads to job losses.

It will cause additional financial burden.

3. What are the advantages of increasing the price of sugar sweetened beverages?

It will be lessen our expenses.

People will switch to nutritious products

The government will give a lot of benefits to citizens like giving scholarships to the

students, road projects, and etc.

It would boost productivity, not just health.

The money in taxes could be used for health related programs.