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Nestlé mulls Philippines coffee plant closure amid possible tax changes

Nestlé SA said it could close its coffee processing plant in the Philippines unless it receives tax incentives, The Nikkei Asian Review reported Sept. 5.

The Swiss food group told Nikkei that rising production costs and tightening sugar supplies in the domestic market have taken a toll on the company. Nestlé produces its Nescafé 3-in-1 brand coffee, milk and sugar mix locally.

Beverage producers are banned from importing sugar to protect Philippine sugar farmers, the Nikkei said. In exchange for the disadvantage caused by the ban, Nestlé has sought an exemption from the country's 12% value-added tax.

Nestlé's threat came as lawmakers began deliberating a bill outlining a second phase of tax reforms, which includes reviewing tax breaks granted to foreign investors. In return, the bill seeks to gradually lower corporate income tax from 30% to 20%.

Ernesto Mascenon, senior vice president and corporate affairs head for Nestlé's Philippines operations, told local media that he hopes the lawmakers will "address the disadvantage of local manufacturers, which use local agriculture products, against those importing finished goods." Mascenon said the company's alternative option would be to close its Philippine plant and move to neighboring countries like Indonesia, Malaysia or Vietnam.

Nestlé also said it may drop its Nesfruta powdered fruit juice brand in the country after sales fell 30% this year as a result of an excise tax imposed on sweetened drinks, which was part of the first round of tax changes.

Meanwhile, other companies have opted to either exit the Philippine market or strengthen local supply chains, the report stated. In August, Mexico's Coca-Cola FEMSA SAB de CV sold its 51% stake in its Philippine operations back to Coca-Cola Co. after supply problems, the sugar tax and labor issues dogged the company. Nestlé's local coffee competitor, Universal Robina Corp., recently bought a sugar miller to secure supplies.