The interior of R&J Wine and Liquor Store in Garapan.
Budweiser and Bud Light would cost more if taxes are raised as proposed by H.B. 23-78.
BUSINESSES that will be affected by House Bill 23-78 spoke to Variety this week about the controversial legislation.
Introduced by Rep. Marissa Flores, the measure would raise to 15 cents from 5 cents the tax on each soft drink and alcoholic beverage container.
On Monday, by a vote of 16 to 3, the House of Representatives passed the bill, which is now with the Senate. Reps. TJ Manglona, Manny Gregory Castro and Roy Ada voted no.
James Lee, beverage sales manager at Marpac, said the tax hike would negatively affect their staff, consumers, and the government itself.
Lee said if taxes go up, prices will also go up. “As a distributor we’re not going to eat up the costs — we’re going to pass them out to the market,” he added.
A price increase will have a “ripple effect” on revenue, he said.
“If the whole objective of this bill is to generate revenue [for the government], we feel it’s a misconception to think [that] businesses will make the same number of sales or more,” Lee said. “It’s quite the opposite. As a matter of fact, we would make less, therefore the government will generate less revenue.”
Lee said in a “worst case scenario,” if wholesalers make less money, they will have to reduce their work hours and/or reduce staff.
Marpac resident manager Guy Pudney said for each case of Bud Light, Busch or Budweiser, the company already pays an excise tax, an EBT tax, and the current tax rate per container. On top of these, they also pay the business gross revenue tax.
“Currently the taxes on a case of beer [are] roughly about seven dollars per case,” Pudney said.
He said if the tax rate is raised to 15% per container of alcohol, it could result in an increase of $3.50 to $4 per case of beer by the time the beverages are sold at retail.
Currently, Lee said the case prices for Bud Light and Budweiser are around $38 at retail.
Pudney said because Marpac also distributes soft drinks, they would be affected “two-fold” by the proposed tax.
He said at current tax rates, locally distributed beverages are significantly more expensive than those purchased from the Army and Air Force Exchange Service in Puerto Rico, which are not affected by local taxes.
If a tax increase is passed, it would create an even more “unfair” advantage for the exchange service, Pudney said.
“They do not pay any taxes at all [or] shipping costs, so they’re able to maintain their prices extremely low,” Pudney said. “It puts us local distributors and wholesalers at a very big disadvantage.”
Pudney’s sentiment is shared by Pacific Trading Company Executive Director Charles Cepeda. The company distributes Miller Lite, Heineken, Pepsi and 7-Up, among other products.
Cepeda said the proposed tax would encourage consumers to buy their beverages “elsewhere,” including at the exchange service.
He said there are now mom-and-pop operations that bring in products from Asia and the United States. It’s “very, very easy to order online,” he added.
Cepeda said the proposed tax hike increase would create an “uneven playing field” that certain individuals can exploit at the expense of wholesalers.
Pudney said his staff have witnessed certain stores selling beverages that were likely bought at the exchange service.
He noted that the exchange service is supposed to benefit military members and retirees only.
For his part, Ric Lee, owner of R&J Wine and Liquor Store and Safehouse in Garapan, said one “under discussed” factor affecting businesses on the island is the population decline.
Based on his observation, there are fewer people who are purchasing items from local stores.
He is also aware that many people have either left the island for good or are planning to do so.
“The [number] of people who go out and spend money is shrinking,” Ric Lee said. “It’s ‘great’ to tax things, but when there’s not that many people to collect the tax from, then it’s a moot point. With less population there’s less demand. You’ll be taxing something so small it won’t make a difference.”
