(Microeconomics) Excise tax on single-use plastic may hurt the economy, groups warn

Article Link:  http://businessmirror.com.ph/2019/12/03/excise-tax-on-single-use-plastic-may-hurt-economy-groups-warn/

 

Stakeholders on Monday appealed to the House Committee on Ways and Means to consider the economic impact of the bill imposing excise tax on single-use plastic bags produced in the Philippines.

 

During the hearing on the proposal imposing excise tax on single-use plastic bags, Philippine Plastics Industry Association Inc. (PPIA) President Willy Go said the proposal would hurt and eventually kill the industry.

 

Go said members of the industry are currently facing the negative impact of local ordinances banning the use of plastic bag in their areas.

 

Several local government units have already issued ordinances against the single-use plastic bags.

 

“We are one with the government when it comes to saving the environment but the P10 [per kilo] increase is very detrimental to low-income earners,” Go said.

 

According to Go, the government can still find ways to manage the environment without imposing excise tax on plastic.

 

“We should instead strengthen the information, education and communication campaigns on the use of plastic bags,” he said.

 

“But plastics have satisfied all requirements. It is reusable-recyclable, nontoxic and biodegradable. Plastic has become a punching bag,” he added.

 

Go said plastic is better compared to paper bags and “the most undesirable is paper.”

 

For his part, Philippine Amalgamated Supermarkets Association President Steven Cua, in the same hearing, said the proposal might hit the economy.

 

“We always maintained that it’s always a problem between disposable and reusable. How do you expect people to shop during Christmas? Plastic is irreplaceable, sad to say,” he pointed out.

 

“There’s a way, there has to be some balance, otherwise how [would] people or consumers shop?” Cua said.

 

But Cua said big supermarkets can comply with the proposal but it would be difficult in the case of small stores, which uses thin single-use plastic bags.

 

In House Bill 178, or the Single-Use Plastic Bag Tax Act, House Committee on Ways and Means Vice Chairman Estrellita B. Suansing of Nueva Ecija said her proposal aims to impose excise tax on plastic bags used in supermarkets, malls, shops, stores, sales outlets and similar establishments.

 

“It is a known fact that plastic bags contaminate soil and waterways. Based on available data, 4 trillion to 5 trillion plastic bags are utilized worldwide each year, and billions of these end up as litter,” she said.

 

“These are, likewise, toxic to both humans and animals, especially, when accidentally ingested. Plastic marine debris have been documented to harm at least 267 species, among which are sea turtles and dolphins,” Suansing added.

 

However, House Minority Leader Bienvenido Abante Jr. pushed for the total ban of single-use plastic.

 

“What if we ban the single-use plastics and impose a higher tax on reusable plastics?” he said.

 

The bill proposes an excise tax of P10 per kilo to be charged at the point of sale of goods or products for every plastic bag provided by the supermarket, malls, shops, stores, sales outlets and other similar establishments.

 

The measure said 50 percent of the revenues from the excise tax on single-use plastic bags shall be allocated to the solid waste management fund provided under the Ecological Solid Waste Management Act of 2000.

 

The same measure was passed on third and final reading during the 17th Congress.

 

Malacañang, meanwhile, said it expects all local governments to emulate Quezon City after it banned the distribution and utilization of single-use plastics in the city starting February 2020.

 

Quezon City Mayor Joy Belmonte on October 15 signed Ordinance SP-2876, which prohibits the distribution and utilization of single-use plastics in hotels, restaurants, and other similar establishments.

 

President Duterte earlier raised the idea of prohibiting the use of single-use plastics in the country during a Cabinet meeting early this month.

 

While Duterte has yet to comment on Quezon City’s move, Presidential Spokesman Salvador Panelo said he expects all local governments to follow Quezon City’s example.

 

“Wala pang sinasabi si Presidente [The President has not said anything yet]. But I suppose all local governments would follow suit, since the President has already made a stand on that,” Panelo said in a Palace briefing on Monday.

 

Asked if the President planned to certify bills on the ban of single-use plastics in the country as urgent, Panelo said he would leave it to the discretion of Congress.

 

“Well, that depends on the members of Congress. The President has already made a stand, definitive stand on that; all they have to do is to pursue that line,” Panelo said.

 

During the 35th Association of Southeast Asian Nations plenary summit in Thailand, the President issued the call to the developed countries to be “more circumspect” with their trash disposal.

 

He lamented that the Philippines, Malaysia, and Indonesia have turned into “among those who become dumping grounds for hazardous shipments.”

 

“If we are talking about improving the ecology of the place, the environment, then we must take into account what we dump,” Duterte said.

 

“This is as good as any other time and any place to tell the other countries, the Western countries, to be more circumspect,” he added.

 

In May, Duterte ordered a total ban of waste materials from any foreign countries after a waste dispute with Canada. With PNA

The over-usage of single-use plastic bags in Philippines has led to negative externalities, as they end up as litter and causes pollution, which damages the living conditions of residents in the Philippines. The government’s solution to this issue was a proposal for an excise tax on the usage of plastic bags, to reduce the market quantity and correct its over-usage. This commentary focuses on advantages and disadvantages of the proposed tax and if it is likely to be imposed.

Figure 1 shows the market for plastic bags in the grocery sector. Assuming that no externality is generated in the production of plastic bags, the Marginal Social Cost (MSC) = Marginal Private Cost (MPC). The article states there are third-party external costs incurred from the usage of this good, as improper disposal of plastic bags contaminate the soil and waterways, being toxic to humans when ingested. The litter and pollution increase health risks for Filipino residents and negatively impacts their living conditions. Since consumers only consider the private benefit, they ignore these external costs generated by the usage of plastic bags. Thus, the Marginal Private Benefit (MPB) > Marginal Social Benefit (MSB) due to the Marginal External Cost (MEC). In the absence of government intervention, the market produces when demand (D = MPB) = supply (S = MPC = MSC) and quantity is at Q₀. However, the market should be producing at Q₁ where MSB = MSC, to reduce the externality, thereby signifying an over-usage of plastic bags in the grocery sector of Q₀Q₁.

To reduce the over-usage, the Filipino government has proposed an indirect tax of 10P/kg on the usage of plastic bags. As seen in Figure 2, it decreases the supply of plastic bags represented by a leftward shift of the MPC to MPC + Tax due to the increased cost of usage. The market equilibrium will shift from E₀ to E₁, where the increased costs translate to higher prices for consumers, with price increasing from P_o to P₁, and quantity falling from Q₀ to Q₁, reducing the over-usage of plastic bags.

 

The article mentions that plastic bags are considered irreplaceable, implying they have few available substitutes, likely being price inelastic and having a |Price Elasticity of Demand (PED)| < 1. Thus, an increase in price from P₀ to P₁ results in a less than proportionate fall in quantity demanded from Q_o to Q₁. This has a disproportionate effect on lower-income households as stated in the article, since they spend a larger percentage of their income on the plastic bags compared to those with higher household income, indicating the regressive nature of the tax. Furthermore, since there are few available substitutes, lower income households are forced to continue purchasing plastic bags in the grocery sector and bear the effects of the regressive tax.

 

While producers in general will see a fall in total revenue from P₀E₀Q₀0 to P_tAQ₁0, the article mentions how it unevenly affects local businesses. Smaller firms will be adversely impacted by the fall in revenue compared to supermarket chains as they would be making substantially less profits, affecting their survival in the long term. This would decrease job opportunities and increase unemployment rates.

 

An advantage of the tax is that revenue collected by the government is planned to be allocated to projects such as the Ecological Solid Waste Management Act, which aims to combat the pollution that has already been caused by the usage of them. The government is hence able to free up their budget and allocate it to other sectors.

 

In conclusion, the imposition of an indirect tax on plastic bags in the grocery sector has both positive and negative implications. However, the negative impact on the market may justify not passing the tax even if it frees up budget for the government, as the article mentions how it may “kill the industry”, leading to a missing market for plastic bags. The article also states that plastic bags are unfairly targeted since they are nontoxic, implying the government overestimated the externality from using them. However, these disadvantages were claimed by Philippine Plastics Industry Association Inc. (PPIA) President Willy Go, whose agenda is to protect the profitability of the plastic bag industry and would thus exaggerate them. Imposing the tax is also in line with other measures that the government has undertaken including Quezon City prohibiting the distribution of them in hotels and restaurants, as well as president Duterte’s idea of prohibiting them completely. Thus, the government will likely discredit Go’s claims and impose the tax to combat the over-usage of plastic bags in the grocery sector.