SEATCA TOBACCO TAX PROGRAM

SEATCA TOBACCO TAX PROGRAM

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PHILIPPINES

The overall progress of tobacco tax policy implementation:

Relationship between tobacco taxes, price and public health

Prior to the sin tax reform in 2012, previous tax increases were aimed only at raising revenues. A main objective of Republic Act (RA) 10351 or the Sin Tax Reform Act of 2012 was to reduce tobacco consumption, taking into account both price elasticity and income elasticity of demand, as well as inflation and changes in household income, to make tobacco products less affordable over time. This includes annual specific increases until 2017 and 4% increases annually thereafter; however, there is no law or policy that specifies a regular adjustment process or procedure for periodic revaluation of tobacco tax levels. Tax levels will need to be evaluated as to their impacts before new tax rates can be proposed, and there is a Congressional Oversight Committee specified in Section 11 of RA 10351, which is tasked to review annual reports of various government agencies regarding expenditures of earmarked revenues and, starting the third quarter of Calendar Year 2016, to review the impact of the tax rates provided under this Act. Monitoring since 2013 has shown that actual revenues have surpassed revenue targets every year since 2013, while survey results show decreases in consumption among the youth and the poor. Subsequent amendments (RA 10963 and RA 11346) have stipulated further annual tax rate increases.

structure of tobacco taxes

Philippines implemented tax reforms that replaced its previous four-tiered specific system with a uniform specific tax on cigarettes. RA 10351[1] was passed in order to reduce tobacco consumption. In December 2017, the RA 10963[2] included a provision for increase in tobacco tax and contained a similar provision on annual increase of tax rate. In July 2019, RA 11346[3] was passed to increase the tobacco tax rates and contained a similar provision on annual increase of tax rates until 2023.

Specific tax per pack of cigarette based on net retail price (in PHP)

20202021202220232024
RA 11346455055605% annually

Additionally, Value-Added Tax (VAT) is imposed on tobacco products at 12%.

Although the Philippines implemented a uniform specific tax for cigarettes since 2017,
in 2019, its Congress passed laws (RA 11346 and RA 11467) [4] imposing much lower tax rates for heated tobacco products and electronic nicotine delivery systems.

level of tax rates to apply

The Philippines may be considered to have long-term tobacco tax policies in that the tobacco tax structure and annual rate increases are fixed by law. RA 10351 increased cigarette excise rates by as much as 340% to 820% (for low-priced brands) in 2013 and stipulates annual excise increases of specific amounts till 2017 with a 4% annual increase thereafter to keep pace with inflation. Subsequent amendments (RA 10963 and RA 11346) have stipulated further annual tax rate increases with a 5% annual increase from 2023 onwards. Currently, the tobacco tax burden as a percentage of cigarette retail prices in Philippines is, on average, 71.32%; however, cigarettes generally remain affordable and can be bought per stick, making it still accessible to the youth and the poor, indicating the need and space for further tax increases in the future.

Comprehensiveness / similar tax burden for different tobacco products

To more effectively reduce consumption by reducing the risk of substitution and downtrading to less-taxed and lower-priced products, the four tax tiers for cigarettes were reduced in 2013 by RA 10351 to two tiers, which will eventually become a uniform specific rate in 2017 while the subsequent amendments (RA 10963 and RA 11346) have stipulated further annual tax rate increases on specific tax rate. Nonetheless, non-cigarette tobacco (e.g. cigars, loose tobacco, chewing tobacco heated tobacco products and electronic nicotine delivery systems) are taxed differently from cigarettes, and there has been no study to compare their tax burdens with that of cigarettes.

Authorization/licensing

Tobacco manufacturers are required to register with the following agencies:

  1. Department of Trade and Industry for single proprietors
  2. Securities and Exchange Commission for partnerships or corporations
  3. Local government – to secure a mayor’s permit or municipal license
  4. Bureau of Internal Revenue
  5. National Tobacco Administration

A permit is also required to remove or transfer manufacturing equipment from the manufacturing facility or Customs house.[5] Business licenses are required for retailers, but not specifically for selling tobacco products. Transporting commercial quantities of tobacco products or manufacturing equipment is also required a license. Authority or accreditation to import, export, transship, process manufactured and unmanufactured tobacco is required by the NTA,[6] as is a permit for wholesale tobacco dealers and leaf trading centers to purchase leaf tobacco. There is no information on permits needed for brokering, warehousing, or distribution of tobacco, tobacco products, or tobacco equipment. Additionally, a license is not required for tobacco growing.

Warehouse system/movement of excisable goods and tax payments

Tobacco excise taxes are imposed at the point of manufacture, importation, or release for consumption from storage or production warehouses. Whether locally manufactured, imported, or in transit, as long as tobacco products are placed in a warehouse, manufacturers and importers are required to post a bond equivalent to taxes to be paid for products intended for domestic sale; the bond is forfeited if products are released into the domestic market.

Tax payments, based on sworn statements,[7] are required to be remitted before removal from the place of production (for domestic tobacco products); or before release from the Bureau of Customs’ custody (for imported products).

Information required in sworn statements include:

 

  1. Name, address, TIN and assessment number of the manufacturer or importer;
  2. Complete root name of the brand as well as the complete brand name with modifiers, if any;
  3. Complete specifications of the brand detailing the specific measurements, weights, manner of packaging, etc.;
  4. Name(s) of the region(s) where the brand is/are to be marketed;
  5. Wholesale price per case, gross and net of VAT and excise tax;
  6. Suggested retail price, gross and net of VAT and excise tax, per pack or per bottle, as the case may be;
  7. Detailed production/importation costs and all other expenses incurred or to be incurred until the product is finally sold (e.g. materials, labor, overhead, selling and administrative expenses) per case;
  8. Applicable rate of excise tax per unit of measure or value, as the case may be; and
  9. Corresponding excise and value-added taxes per case.

Nevertheless, tax authorities do not allow for the public disclosure of the information contained within the tax payment reports, taking into account confidentiality rules in accordance with national law.

Anti-forestalling measures

At the end of 2014 in anticipation of the 1 January 2015 tax increase, the BIR issued Revenue Memorandum Circular No. 89-2014 to inventory all tax stamps held by manufacturers and thereby determine if there are any tax differentials to be collected. This served as an effective anti-forestalling measure, but it is not known if this will be repeated on an annual basis.

Fiscal markings

BIR Revenue Regulation No. 7-2014[8] prescribes the affixture of Internal Revenue Stamps on imported and locally manufactured cigarettes and the use of the Internal Revenue Stamp Integrated System (IRSIS) for the ordering, distribution and monitoring thereof. As defined, an Internal Revenue Stamp shall refer to the BIR-issued stamp with a dimensional size of 23 mm by 43 mm containing multi-layered security features and an IRSIS-assigned Unique Identifier Code (UIC) and a Quick Reference (QR) Code containing information pertinent only to the cigarette container (e.g. pack) to which the internal revenue stamp is affixed.

The internal revenue stamps have different designs according to whether the cigarettes are locally manufactured or imported and packed by hand or by machine (with different colors for high or low tax bracket). Internal revenue stamps may be ordered in banderols or pre-cut/stack according to the machine requirements of the importer or local manufacturer. No other kinds of fiscal markings to make it easier to distinguish legal, tax-paid product from illegal, tax-unpaid products are required, and a standard pack size to facilitate the application of fiscal markings and increase the efficiency of tax administration is also not required. The internal revenue stamps are also not part of a tracking and tracing system to control the supply chain of tobacco products.

Enforcement

The government clearly designates and grants appropriate powers to tax enforcement authorities. Under RA 8424 (An Act Amending the National Internal Revenue Code, as Amended, and for Other Purposes, also known as the Tax Reform Act of 1997), the Bureau of Internal Revenue under the supervision and control of the Department of Finance has duties and supervisory and police powers to assess and collect all national internal revenue taxes, fees, and charges, and enforce all forfeitures, penalties, and fines connected therewith, including to execute judgments in all cases decided in its favor by the Court of Tax Appeals and the ordinary courts. The law (RA 10021) also provides for information sharing on tax matters by the BIR among enforcement agencies.

Offenses identified by law include understatement of the suggested net retail price by as much as fifteen percent (15%) of the actual net retail price, misdeclaration of pertinent data in sworn statements, failure to affix tax stamps, and use of fake, old, or re-used tax stamps, for which a range of penalties is prescribed in RA 8424, RA 10351 and other BIR regulations, including but not limited to fines, cancellation of business permits, imprisonment, and deportation (for non-citizens).

Use of revenues – financing of tobacco control

RA 10351 specifies that 15% of the incremental revenue collected from excise tax on tobacco products shall be exclusively utilized in programs to promote economically viable alternative livelihoods for tobacco farmers, such as: 1) programs that will provide inputs, training and other support for tobacco farmers who shift to production of agricultural products other than tobacco; 2) programs that will provide financial support for tobacco farmers who are displaced or who cease to produce tobacco; 3) cooperative programs to assist tobacco farmers in planting alternative crops or implementing other livelihood projects; and 4) livelihood programs and projects that will promote, enhance and develop the tourism potential of tobacco-growing provinces, among others. Eighty percent (80%) of the remaining balance of the incremental revenue derived under RA 10351 shall be allocated for universal health care under the National Health Insurance Program, the attainment of the Millennium Development Goals and health awareness programs; and 20% shall be allocated nationwide, based on political and district subdivisions, for medical assistance and health enhancement facilities program which is determined by the Department of Health (DOH). There is no specific earmarking of tax revenues for tobacco control programs. For incremental revenue under RA 10963, 70% goes to infrastructure project (such as the Build, Build, Build program of the government), while 30% goes to social mitigating measures and investments such as education, health, social protection, etc.) The funding for the national tobacco control program is dependent on the general budget and it remains to be insufficient. However, it must be noted that local government units (e.g. provinces, cities, and municipalities) have the power to allocate funding for the implementation of their local tobacco control programs.

TAX-FREE/DUTY-FREE SALES​

While the Philippines does not prohibit the sale to and/or importation by international travelers of tax-free or duty-free tobacco products (allowance per traveler is 200 cigarettes), excise taxes are applied to products sold in duty-free stores according to RA 10351.

Protection of tax policies from vested interests​

In accordance with WHO FCTC Article 5.3, the Civil Service Commission and Department of Health issued CSC-DOH Joint Memorandum Circular (JMC) 2010-01 on the Protection of the Bureaucracy Against Tobacco Industry Interference for the guidance and compliance of all government agencies. Despite this, some legislators consult tobacco companies in private and accept policy/legal drafts from them. [9]In addition, Philip Morris and Fortune Tobacco Company (PMFTC) promoted Codentify to the Department of Finance, BIR, legislators, and the media; however, this was rejected by the BIR based on the CSC-DOH JMC and PMFTC’s conflict of interest. Currently, there is no non-binding agreement or partnership with the tobacco industry in implementing/enforcing tobacco tax policies; although the Bureau of Customs used to have a Memorandum of Understanding with Philip Morris Philippines; this was not renewed based on the DOH-CSC JMC 2010-01.[10]

Source: SEATCA Tobacco Tax Index: Implementation of WHO Framework Convention on Tobacco Control Article 6 in ASEAN Countries 2021

[1] Republic Act 10351 (An Act Restructuring the Excise Tax on Alcohol and Tobacco Products by Amending Sections 141, 142, 143, 144, 145,8, 131 And 288 of Republic Act No. 8424, otherwise known as the National Internal Revenue Code Of 1997, as Amended By Republic Act No. 9334, and for Other Purposes)
[2] Republic Act 10963 (An Act Restructuring Amending Sections 5, 6, 24, 25, 27, 31, 32, 33, 34, 51, 52, 56, 57, 58, 74, 79, 84, 86, 90, 91, 97, 99, 100, 101, 106, 107, 108, 109, 110, 112, 114, 116, 127, 128, 129, 145, 148, 149, 151, 155, 171, 174, 175, 177, 178, 179, 180, 181, 182, 183, 186, 188, 189, 190, 191, 192, 193, 194, 195, 196, 197, 232, 236, 237, 249, 254, 264, 269, And 288 of Republic Act No. 8424, otherwise known as the National Internal Revenue Code of 1997, as Amended, and for other Purposes)
[3] Republic Act 11346 (An Act Increasing the Excise Tax on Tobacco Products, Imposing Excise Tax on Heated Tobacco Products and Vapor Products, Increasing the Penalties for Violations of Provisions on Articles Subject to Excise Tax, and Earmarking a Portion of the Total Excise Tax Collection From Sugar-Sweetened Beverages, Alcohol, Tobacco, Heated Tobacco and Vapor Products For Universal Health Care, Amending for this Purpose Sections 144, 145, 146, 147, 152, 164, 260, 262, 263, 265, 288, AND 289, Repealing Section 288(B) AND 288(C), and Creating New Sections 263-A, 265-B, and 288-A of the National Internal Revenue Code of 1997, as amended by Republic Act No. 10963, and for other Purposes)
[4] Government of the Philippines. (2019) Ocial Gazette: RA 11346 and RA 11467. Retrieved from https://www.ocialgazette.gov.ph/2019/07/25/republic-act-no-11346/ and https://www.ocialgazette.gov.ph/2020/01/22/republic-act-no-11467/
[5] Section 164 of National Internal Revenue Code (NIRC)
[6] National Tobacco Administration (http://nta.da.gov.ph/services_charter.html)
[7] in accordance with Bureau of Internal Revenue (BIR) Revenue Regulations No. 17-2012, Section 7 (Submission of Sworn Statement).
[8] Cigarette packs intended for export are no longer required to be affixed with tax stamps based on Revenue Regulations (RR) No. 9-2015, which amended the provisions of Revenue Regulations No. 7- 2014
[9] Bongbong Marcos on ‘gotcha’ picture: Philip Morris offered data by: Carmela Fonbuena, Rappler.com, November 27, 202. http://www.rappler.com/nation/16819-bongbong-marcos-on-gotcha-picture-philip-morris-offered-data.
[10] WHO FCTC Article 5.3 Guidelines Best Practices: Philippines, Southeast Asia Tobacco Control Alliance, March 2015. http://seatca.org/dmdocuments/CSC-PHL%20best%20practice_WCTOH2015_R.pdf

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