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NTRC TRJ: Profile and Taxation of the Philippine Fast Food Industry

The paper examines the contribution of the country’s fast food industry to the economy as well as the taxes imposed thereon. It also identifies opportunities for growth and the challenges that fast food chain owners face to further improve the industry performance. “Fast foods” refer to types of food that can be prepared and served very quickly. They are characterized as easy to prepare, accessible and cheap alternatives to home-cooked meals. Fastfood chains, also known as “quick service restaurants”, serve these types of food to customers packaged for immediate consumption, either on or off the eating premises. Fast food customers normally order at the counter and pay before eating. Based on the 2009 Survey of Tourism Establishments in the Philippines (STEP) conducted by the National Statistics Office (NSO), the country had a total of 13,119 establishments engaged in food and beverage service activities while data from the Euromonitor International, the world leader in strategy research for consumer markets, shows that there was a total of 160,263 food service units/outlets in the Philippines in 2010, of which 5,411 were in the fast food sector. Based on NSO data, the entire food and beverage service activities generated a total employment of 230,914 in 2009, of which 91,240 were employed by fast food chains. Among the popular fast food chains in the country are Jollibee, McDonald’s, Chowking, Mang Inasal, KFC and Greenwich. They hold, on the average, about 80% share in the total market value of the entire fast food industry. A number of factors and strategies, both external and internal to the fast food industry, are contributing to its continuing growth. The demand side drivers of the fast food industry, such as growing population, economic growth, fast changing lifestyle, among others, push the fast food sector to bigger opportunities and greater heights. On the other hand, although the fast food industry is robust as well as fast developing, it is not without problems and challenges. Economic downturn, increasing commodity prices, stiff competition, and customers’ move to healthier lifestyles are some of the threats facing the industry today. As of December 2012, there were 32,689 BIR-registered restaurants, cafes and fast food centers in the country. However, it can be noted that not all of these BIR-registered restaurants, cafes and fast food centers paid taxes to the BIR from 2007-2012. In fact, out of 32,689 registered establishments in 2012, only 10,512 establishments or less than one-third actually paid income tax and almost the same number paid business tax (either VAT or the percentage tax, whichever is applicable) and other taxes. The low number of BIR-registered restaurants, cafes and fast food centers with tax payments was because some establishments only achieved a “break-even” or ended up with net losses, while some had no recorded operation/transaction during a specific year. Moreover, the number of BIR-registered food establishments was scant when compared to the count of Euromonitor International on the number of food service establishments in the country which means that many are escaping the ambit of taxation. It is also noted that there are food establishments that are consistently included in the Top 1,000 Corporation and yet are not among the Top Taxpayers of the BIR. Thus, despite the continuous increase in gross revenue and net income and high gross profit margins, the effective tax rates (ETRs) of some fast food establishments remained low. In particular, the ETR ranged from 0.9% to 3.8% even if they belong to the same line of business. This only implies that some fast food establishments were able to evade taxes and may therefore be flagged for audit by the BIR. There is worldwide awareness and concern on the ill effect of eating fast food to the body. While personal responsibility for maintaining a healthy and active lifestyle is important, the government and the consumer industries must also play a significant role in balancing the promotion and development of the fast food industry without compromising the health of the citizenry. The Department of Health (DOH) and the Food and Drug Administration (FDA) should strictly monitor/regulate the quality of food that fast food stores are producing and make sure that these are safe for human consumption. The government may also explore the possibility of imposing a “fat tax” on fast food similar to the tax being charged by many European countries like Denmark, Romania, Hungary, Finland, France, Great Britain and Scotland and some States in America like New York and Alabama. The revenue that shall be collected therefrom may be exclusively used for the provision of health care services.

National Tax Research Center
Authors Keywords
NTRC; Philippine Fast Food Industry;
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Published in 2013 and available in the NTRC Library or can be downloaded as full text Downloaded 43 times since May 06, 2019