By Alexandria Grace C. Magno, Reporter
LISTED consumer companies exposed to alcohol, tobacco and sweetened beverages may face temporary pressure on margins and sales volumes under the government’s proposed excise tax package, as manufacturers are expected to absorb part of the higher levies before passing them on to consumers, analysts said.
The Department of Finance (DoF) proposal would more than triple the excise tax on beverages containing caloric or noncaloric sweeteners to P20 per liter from P6.
The tax on beverages using high-fructose corn syrup would likewise rise to P40 per liter from P12. Both proposed rates would be indexed by 5% annually.
BDO Securities Corp. President John Tristan D. Reyes said affected companies would likely absorb part of the additional taxes initially to limit the impact of price increases on demand.
“We expect most companies to try mitigating the initial impact on demand by absorbing some of the increased excise taxes, which could result to a hit on their margins,” he said in a Viber message.
Companies would likely pass the higher costs on to consumers in phases while considering the risk that buyers may shift to less expensive products, he added.
Mr. Reyes said alcoholic beverage manufacturers are likely to be among the companies most affected by the proposal to raise the specific excise tax on distilled spirits to P157.21 per proof liter and expand its coverage to premixed alcoholic beverages, or alcopops. The proposed rate would be indexed by 6% annually.
Distilled spirits account for 52% of the sales of Emperador, Inc., 16% of San Miguel Food and Beverage, Inc.’s sales and 25% of LT Group, Inc.’s sales, according to Mr. Reyes.
LT Group also has exposure through its tobacco and sweetened-beverage businesses, while its Tanduay business accounts for about 10% of its gross asset value, he said.
Alliance Global Group, Inc. and San Miguel Corp. derive about 69% and 43% of their respective gross asset values from Emperador and San Miguel Food and Beverage, Mr. Reyes added.
Aboitiz Equity Ventures, Inc.’s Coca-Cola Philippines business, which accounts for about 8.5% of the conglomerate’s gross asset value, may initially absorb part of the higher sweetened-beverage tax to temper its impact on demand, he said.
Mr. Reyes cited management’s observation that Coca-Cola Philippines’ volumes recovered about six months to a year after the previous sweetened-beverage tax increase, once consumers had adjusted to higher soft-drink prices.
Universal Robina Corp.’s ready-to-drink category accounts for about 8% of its total revenue, while sweetened-beverage excise taxes represent roughly 1.3% of its cost of goods sold, he said.
Century Pacific Food, Inc. is likely to be among the least affected consumer companies because of its limited exposure to sweetened beverages, Mr. Reyes said. Its beverage portfolio is composed mainly of milk products, which are exempt from the excise tax, while its coconut water products have minimal sugar content and account for a small portion of revenue.
Toby Allan C. Arce, head of sales trading at Globalinks Securities and Stocks Inc., said the effects of the proposed taxes would vary depending on a company’s product exposure, pricing power, brand strength and ability to pass higher costs on to consumers.
“While the measures would undoubtedly raise operating challenges for affected sectors, the long-term impact is unlikely to be uniform, as larger, better-capitalized companies generally have greater flexibility to adapt than smaller industry participants,” Mr. Arce said in a Viber message.
He said LT Group, through PMFTC, would be among the listed companies most directly exposed to higher tobacco taxes. Emperador and Ginebra San Miguel could face pressure from higher alcohol taxes.
Century Pacific and Universal Robina may also be affected through their sweetened-beverage businesses, although their diversified operations could help mitigate the impact, he added.
Diversified conglomerates with limited dependence on products covered by the proposed taxes are likely to experience only modest effects at the group level, Mr. Arce said.
Companies with strong brands, diversified product portfolios and pricing power would be better positioned to manage the higher taxes, he added. Larger companies may also have more flexibility to absorb temporary pressure on margins.
“Most manufacturers would attempt to pass a significant portion of the additional tax burden to consumers while carefully managing the pace of price adjustments to avoid excessive volume declines,” Mr. Arce said.
Companies may also emphasize higher-margin products or introduce alternatives that are less affected by the proposed tax structure, he said.
Demand is likely to weaken to varying degrees, particularly among price-sensitive consumers. Premium brands may be more resilient, while lower-priced products could experience larger volume declines, according to Mr. Arce.
The eventual earnings impact would depend on whether companies can offset weaker volumes through higher prices, operating efficiencies or changes in their product mix, he added.
COL Financial Group Research Analyst Denise Joaquin said the proposal remained at an early stage and was expected to undergo further discussions.
“We expect most companies to mitigate the initial impact on demand by absorbing some of the increased excise taxes, which could result in a hit to their margins,” she said in a Viber message.
Ms. Joaquin said beverage manufacturers raised prices when the sweetened-beverage tax was introduced under the Tax Reform for Acceleration and Inclusion Law in 2018. The price increases contributed to initial volume declines in categories such as ready-to-drink tea, carbonated drinks and energy drinks.
Manufacturers would again likely raise prices to recover the additional tax, although the extent would depend on each brand’s pricing power and competitive position, she said.
Companies may initially absorb part of the tax to protect volumes and market share, resulting in temporary margin pressure. Over the longer term, they could reformulate products, adjust package sizes or shift their product portfolios toward alternatives, Ms. Joaquin added.
“The final form of the bill will provide a clearer picture of the potential impact,” she said.
Aside from sweetened beverages and alcoholic products, the DoF package proposes new or higher taxes on e-cigarettes, heated tobacco and novel tobacco products, flexible plastic products, luxury vehicles and private aircraft.
The Finance department is proposing a unified excise tax of P72.93 on e-cigarettes and heated tobacco products beginning in 2027.
The rate would apply per milliliter of salt nicotine, per two milliliters of freebase nicotine and per pack of 20 heated tobacco products.
Novel tobacco products would be taxed at P72.93 per two grams or two milliliters, while devices used for heated tobacco, vapor and novel tobacco products would be subject to a P150-per-unit levy. The rates would be indexed by 5% annually beginning in 2028.
The proposed alcohol tax changes are expected to generate P7.82 billion in additional average annual revenue.
The entire tax package is expected to generate an average of P129.68 billion in additional annual revenue from 2027 to 2030, DoF Undersecretary Karlo Fermin S. Adriano previously said.
The additional revenue would offset the estimated P81.73-billion average annual revenue loss from raising the personal income tax-exempt threshold to P350,000 and removing the minimum corporate income tax for micro and small enterprises.
The package is projected to generate P47.94 billion in average net additional revenue annually from 2027 to 2030.
