CHAPTER I

THE PROBLEM AND ITS BACKGROUND

Introduction

The Tax Reform for Acceleration and Inclusions (TRAIN) Law as advertised by the

government has the goal to create a more just, simple, and efficient tax system, but this

system still has its fallbacks. While reducing the personal income tax of citizens leading to a

higher take-home pay, this law also plummeted the prices of basic commodities including

sweetened beverages by imposing taxes on certain products. Although the government

wanted the decline in consumption of these products due to several reasons, this also affected

the profitability of micro-enterprises specifically sari-sari stores.

TRAIN Law introduced these new taxes in the form of excise tax on sugar-sweetened

beverages like powdered juice, ready-to-drink juice and powdered tea. However, some drinks

are exempted from this law, such as milk, natural fruit juices, vegetable juices, medically

indicated beverages, and instant coffee - being one of the most consumed products of

ordinary Filipinos, from the sugar-sweetened beverage tax. This new tax reform brought

about numerous changes in the daily lives of every Filipino most especially to the small-scale

entrepreneurs and retailers being one of the major providers of these newly taxed products.

Sari-sari stores were greatly affected by the new tax reform considering the big role it plays

in every Filipino community’s way of living. These stores are often located in front of

ordinary Filipino houses where varieties of daily necessities are offered. By setting up small

businesses near their homes, Filipinos believe that they would be able to augment their

family’s income and sustain their family’s needs. This is the reality for the majority of

Filipinos. These micro-enterprises usually cater the low income and minimum wage earners,

blue-collar workers and even the students. The low income or below minimum wage earners

patronize sari-sari stores because of their convenience since many of them cannot afford to
buy the basic necessities in bulk. Imagine how the new tax reform law affects these people

and put the profitability of micro-enterprises at risk.

Background of the Study

“Taxation is a power inherent in every sovereign state being essential to the existence

of every government” (Garcia &Tabag, 2017). Without taxation, the government cannot

perform its major duties and responsibilities to provide basic services to the general public.

Upon promoting the general welfare of the public, there are public expenditures incurred that

needs to cover by the government and taxation is the best solution to this problem.

Under the presidency of Rodrigo Duterte a reform on taxation was enforced, the Tax

Reform for Acceleration and Inclusions Law, more commonly known as TRAIN Law is the

first package of the comprehensive tax reform program which seeks to make the tax system

simpler, fairer, and more efficient by correcting a number of deficiencies it. It also includes

mitigating measures that are designed to redistribute some of the gains to the poor. A part of

this law is the imposition of excise taxation on sugar sweetened beverages (SSB).

Excise tax is an indirect tax on the sale of specific goods that are usually superfluous

in nature. It is indirect in a sense that the tax is added as a part of the price of the product

while being collected by one entity in the supply chain. The government sees SSB’s as

unnecessary and gives harmful effects to its consumers thus the levying of excise tax on it.

SSB’s are drinks with added sugar including non-diet soft drinks/sodas, flavored juice

drinks, sports drinks, sweetened tea, coffee drinks, energy drinks, and electrolyte replacement

drinks. These kind of beverages do not only have minimal to no health benefits but also lead

to different health risks such as diabetes, obesity, tooth decay, and heart diseases to name a
few. To reduce public consumption, the government imposed a high tax rate of these products

in hopes that the public would turn to other beverages that contain less sugar.

According to the Department of Finance an excise rate of P6 per liter will be taxed on

drinks containing caloric or non-caloric sweetener, and P12 per liter on drinks containing

high-fructose corn syrup. 3-in-1 coffee and milk are exempt from this tax. It was primarily

part of a comprehensive health measure aimed to curb the consumption of SSBs and address

the worsening number of diabetes and obesity cases in the country, while raising revenue for

complementary health programs that address these problems. The implementation of this law

however, affected sari-sari stores and eateries who offer these products. It is evident that

SSB’s play a great part in the profit generation of the said enterprises.

A huge portion of the lower class Filipinos who wants to put up their own businesses

engage in sari-sari stores. These can be found on almost every corner of every barangay and

has been a vital part of a Filipino community.

The sari-sari store is one of the products of Filipino ingenuity. It is well known as the

primary source of consumer goods for ordinary households in the Philippines in exact

quantities that suit an average person’s daily needs. A news article from the Nielsen

Company states that the sari-sari stores in the Philippines continue to serve as the pantry

extension of about 20 households each. Hence, the outlet type remains as an important retail

channel contributing 36% of fast-moving consumer goods peso sales.Despite the limited floor

area, a typical store can provide up to 200 products, more than half of these are food items.

One the integral products of a sari-sari stores are the SSB’s which has become a part of the

diet of a significant number of Filipinos. Nielsen Company also conducted a survey which

was re-confirmed by the Philippine Association of Stores and Carinderia (PASCO) which

states that 40% of the earnings of a small store comes from these types of beverages.
 These made the researchers curious about how the tax reform law affected the

profitability of the said entities, how they can strategize to hedge the effects they encounter

and continue to thrive as business enterprises. Thus the creation of this study.

Statement of the Problem:

This study aims to determine the affliction of the tax burden levied on sugar-

sweetened beverages from the implementation of tax reform for acceleration and inclusions

act on the sari-sari stores owners in the selected areas of Metro Manila.

1. What is the level of inventory turn-over on sugar-sweetened beverages of sari-sari

stores in selected areas in Metro Manila after implementing the Tax Reform for Acceleration

and Inclusion Act?

2. How does the tax reform on sugar-sweetened beverages affect the profitability of the

sari-sari store in selected areas in Metro Manila?

3. What is the level of effectiveness of the following financial strategies used in

avoiding the possible loss due increased in the tax levied on sugar-sweetened beverages?

a. Concentrating the budget on the product not affected by the TRAIN Law

b. Product elimination to avoid additional expenses

c. Change in product mark-up

d. Use of no strategies

Statement of Objectives
 The main objective of this study is to determine the affliction of the tax burden levied

on sugar-sweetened beverages from the implementation of tax reform for acceleration and

inclusions act on the sari-sari stores owners in Metro Manila. Our study also aims:

1. To know the level of inventory turn-over on sugar-sweetened beverages of

sari-sari stores in selected areas in Metro Manila after implementing the Tax

Reform for Acceleration and Inclusion Act.

2. To find out how the tax reform on sugar-sweetened beverages affect the

profitability of the sari-sari store in selected areas in Metro Manila.

3. To determine the level of effectiveness of the following financial strategies

used in avoiding the possible loss due increased in the tax levied on sugar-

sweetened beverages:

a. Concentrating the budget on the product not affected by the TRAIN Law

b. Product elimination to avoid additional expenses

c. Change in product mark-up

d. Use of no strategies

Assumptions

The researchers come up in the certain assumptions including the following:

1. Sugar-sweetened beverages are one of the most in demand products offered by the target

population.

2. The increase in the excise tax of sugar-sweetened beverages is the reason of its price hike.

3. Sugar-sweetened beverages has a significant effect in the profitability of the target

population.
4. Other factors of profitability are held constant during the performance of the study.

Hypothesis

Null Hypothesis:

1. There is a decrease in the profitability of the business.

2. The store owners do not apply proper financial strategies.

Conceptual Framework

INPUT

- The level of inventory turn-over on sugar-sweetened beverages of sari-sari stores in

selected areas in Metro Manila after implementing the Tax Reform for Acceleration

and Inclusion Act.

- The effects of tax reform on sugar-sweetened beverages affect the profitability of the

sari-sari store in selected areas in Metro Manila.

- The level of effectiveness of the following financial strategies used in avoiding the

possible loss due increased in the tax levied on sugar-sweetened beverages in terms

of:

· Concentrating the budget on the product not affected by the TRAIN Law

· Product elimination to avoid additional expenses

· Change in product mark-up

· Use of no strategies

PROCESS

-Preparing survey questionnaires to be answered by the respondents.

-Gathering of data through survey of different sari-sari stores on selected areas in

Metro Manila.

-Statistical treatment of the gathered data.

-Analysis and interpretation of the gathered data.

OUTPUT

Effects of the tax burden on levied on sugar-sweetened beverages from the

implementation of tax reform for acceleration and inclusions law on the sari-sari store

owners in selected areas in metro manila

Figure 1 Represent the model used to show the flow of the Study is the Input-

Process-Output (IPO) which serves as a guideline for the researcher all throughout the

study.

The Input (I) represent the aims of the study consisting of the level of inventory turn-

over on sugar-sweetened beverages of sari-sari stores in selected areas in Metro

Manila after implementing the Tax Reform for Acceleration and Inclusion Act, The

effects of tax reform on sugar-sweetened beverages affect the profitability of the sari-

sari store in selected areas in Metro Manila and The level of effectiveness of the

following financial strategies used in avoiding the possible loss due increased in the

tax levied on sugar-sweetened beverages in terms of: Concentrating the budget on the

product not affected by the TRAIN Law, product elimination to avoid additional

expenses, change in product mark-up or the use of no strategies..

The Process (P) that serves as a bridge and linker between the input and output which

consist of: First, preparation of the survey questionnaires. Second, gathering of data

from the respondents. Third, statistical treatment of the gathered data. Lastly, analysis
 and interpretation of the gathered data.

The Output (O) shows the outcome of the study which is the effects of the tax

burden on levied on sugar-sweetened beverages from the implementation of tax

reform for acceleration and inclusions law on the sari-sari store owners in selected

areas in metro manila

Significance of the Study

One of the key measures of business success is proper financial management. Store

owners always thrive for wise financial decisions that will improve the profitability of their

business. Unfortunately, for some entrepreneurs, these wise financial decisions and

management do not come easily. The findings of this study will help the store owners to

come up with the financial strategies that will enhance their profitability overtime.

The result of the study will be of great benefit to the following:

Sari-sari store owners. This study can help the store owners improve their current situation

by introducing proper financial management that will enhance the profitability of their

business.

Government. This can help them implement amendments to the law that will both benefit

the store owners and other citizens of the country.

Potential sari-sari store owners. As novice entrepreneurs in this field, they can gain

strategies and competitive advantage over their competitors that will be helpful for their

future business.
Other researchers. For other researchers who pursue the same topic, this study can serve as

a basis for their research.

Scope and limitations

This research study was conducted during the first semester of the school year 2018-

2019. It primarily focuses on the determination of the affliction of the tax burden levied on

sugar-sweetened beverages from the implementation of Tax Reform for Acceleration and

Inclusions Law on the selected sari-sari stores owners in selected areas in Metro Manila.

Moreover the paper seeks to know and evaluate the effectiveness of the different financial

strategies used in avoiding the possible losses due to the increased tax levied on sugar-

sweetened beverages.

One hundred selected respondents are targeted to answer the survey questionnaires.

The researcher focused on the selected sari-sari store in selected areas of Metro Manila as the

subject of the study. There are twenty five respondents in every location compose of sari-sari

stores. These said respondents were located at Valenzuela City, Muntinlupa City, Quezon

City and Manila City. The distribution of survey questionnaire is limited to one respondent

per sari-sari store and also to the one that will accommodate and entertain the researcher’s

questions and queries for the said purpose. The researchers assured the respondents that the

data and information gathered would be for academic purposes. The results of the study are

accurate up to the extent which could not be controlled by its proponents.

Definition of Terms
Commodity - is a basic good used in commerce that is interchangeable with other

commodities of the same type.

Consumer goods - products bought for consumption by the average consumer.

Department of Finance - is the executive department of the Philippine government

responsible for the formulation, institutionalization and administration of fiscal policies,

management of the financial resources of the government, supervision of the revenue

operations of all local government units, the review, approval and management of all public

sector debt, and the rationalization, privatization and public accountability of corporations

and assets owned, controlled or acquired by the government.

Excise Tax - are special taxes on specific goods or activities—such as gasoline, tobacco or

gambling.

Inventory Turnover - is a ratio showing how many times a company has sold and replaced

inventory during a period.

Markup - is the amount that a seller of goods or services charges over and above the total

cost of delivering its product or service in order to make a desired profit.

Micro-enterprise - a business operating on a very small scale, especially one with a sole

proprietor and fewer than six employees.

Profitability - The degree to which a business or activity yields profit or financial gain.

Public Expenditure - It is spending made by the government of a country on collective

needs and wants such as pension, provision, infrastructure, etc

Revenue - It is the amount of money that a company actually receives during a specific

period, including discounts and deductions for returned merchandise.

Sugar sweetened beverages (SSB) - drinks with added sugar including: non-diet soft

drinks/sodas, flavored juice drinks, sports drinks, sweetened tea, coffee drinks, energy drinks,

and electrolyte replacement drinks.

Tax - involuntary fees levied on individuals or corporations and enforced by a government

entity - whether local, regional or national - in order to finance government activities.

Taxation - It is a term for when a taxing authority, usually a government, levies or imposes a

tax. It applies to all types of involuntary levies, from income to capital gains to estate taxes.

Train Law - The law contains amendments to several provisions of the National Internal

Revenue Code of 1997 (“Tax Code”) on individual income taxation, passive income for both

individuals and corporations, estate tax, donor’s tax, value-added tax (“VAT”), excise tax,

and documentary stamp tax (“DST”), among others.