QuestionsQuestions (EXECUTIVE ORDER NO. 578)
Under Sec. 144(B) of the National Internal Revenue Code (NIRC) as amended by RA 11346, heated tobacco products are taxed at P10 per pack of 20 units (or packaging combinations of not more than 20 units) effective January 1, 2020. The rate increases by 5% every year effective January 1, 2021, through revenue regulations issued by the Secretary of Finance.
Heated tobacco products “shall only be packed in twenties and other packaging combinations of not more than twenty (20) units” (Sec. 144(B)). While the text provides administrative/criminal consequences elsewhere for specific violations, the packing restriction itself is mandatory; violations would generally expose the manufacturer/importer/distributor to enforcement and penalties under the excise/tobacco provisions applicable to the specific act (e.g., misdeclaration, unlawful removal, or other prohibited acts).
For heated tobacco products manufactured in the Philippines and produced for export, they cannot be removed from the place of manufacture or exported without posting an export bond equivalent to the amount of the excise tax due thereon if sold domestically. For export, products may be transferred to a bonded facility upon posting of a transfer bond prior to export. Separately, heated tobacco products imported into the Philippines destined for foreign countries are not allowed entry without posting a bond equivalent to the amount of customs duty, excise, and VAT due thereon if sold domestically.
They must submit to the Commissioner a sworn statement of the volume of sales of each brand for the three-month period immediately preceding, within 30 days from the effectivity of the Act and within the first 5 days of every month thereafter (Sec. 144(B)). Misdeclaration/misrepresentation may result in summary cancellation or withdrawal of their permit to engage in business. Corporate liability may be fined treble the deficiency taxes, surcharges, and interest, and individuals may face criminal liability under Sec. 254 (as referenced in the text).
The sale/distribution/transfer of heated tobacco products to minors, and purchasing/receiving from a minor, is prohibited; using heated tobacco products by minors is also prohibited. “It shall not be a defense” that the seller/distributor did not know the minor’s age or had no reason to believe the product was for consumption of the minor. Violations are punishable with the penalties provided in RA 9211 (Tobacco Regulation Act of 2003).
Unit packets and outside wrapping must carry health warnings compliant with RA 10643 (Graphic Health Warnings Law). Manufacturers and importers are given one (1) year from effectivity to comply with the requirements, and after 18 months from effectivity, no person shall sell, commercially distribute, or display heated tobacco products without ensuring labels/packages and containers used in display meet requirements.
The rate depends on the actual quantity/volume of liquid solutions or gel per individual cartridge/refill/pod/container measured in milliliters (ml), with a graduated schedule: 0.00–10.00 ml = P10; 10.01–20.00 ml = P20; 20.01–30.00 ml = P30; 30.01–40.00 ml = P40; 40.01–50.00 ml = P50; and more than 50.00 ml = P50 plus P10 for every additional 10 ml (Sec. 144(C)(1)). The rates increase by 5% annually starting January 1, 2021.
They must indicate on the package the actual volume in milliliters of the liquid solutions and gels (Sec. 144(C)). This is legally important because excise tax is based on the ml quantity; mislabeling/misdeclaration can lead to permit cancellation and other penalties.
They must submit a sworn statement of the volume of sales for particular brands of vapor products for the three-month period immediately preceding: within 30 days from effectivity and within the first five days of every month thereafter (Sec. 144(C)). Misdeclaring/misrepresenting triggers summary cancellation or withdrawal of permit after final findings by the Commissioner; corporations may be fined treble the deficiency taxes, surcharges, and interest; and individuals may be criminally liable under Sec. 254 (as referenced in the text).
For cigarettes packed by hand: effective Jan. 1, 2020 = P45 per pack; Jan. 1, 2021 = P50; Jan. 1, 2022 = P55; Jan. 1, 2023 = P60. After 2023, the rates increase by 5% every year effective Jan. 1, 2024 through revenue regulations issued by the Secretary of Finance (Sec. 145(B)).
Cigarettes packed by machine must be packed only in twenties and other packaging combinations of not more than 20 units (Sec. 145(C)). RA 11346 also provides that understatement of the suggested net retail price by up to 15% of the actual net retail price makes the manufacturer/importer liable for additional excise tax equal to the tax due and the difference between the understated suggested net retail price and the actual net retail price. Further, the BIR is mandated to issue a revenue regulation prescribing a cigarette floor price/minimum cigarette price taking into account the sum of excise and VAT.
Sec. 146 provides, among others: for heated tobacco products, 10 centavos (P0.10) for each thousand unit of heated tobacco products; and for vapor products, 1 centavo (P0.01) for each milliliter of liquid used in vapor products.
“Heated tobacco products” are tobacco products consumed through heating to release an aerosol inhalable by users without burning/combustion, including liquid solutions and gels part of the product (Sec. 147(e)). “Vapor products” are liquid solutions/gel containing nicotine that transforms into an aerosol without combustion via mechanical heating element/battery/circuit, including cartridges/tanks and devices; it also includes ENDS/ENNDS systems with e-liquids/refills up to 65 mg/ml nicotine (Sec. 147(f)). These definitions matter because excise tax rates, classifications, permitted sales rules, reporting, and penalties depend on whether a product is taxed as heated tobacco or vapor.
The BIR has authority to supervise establishments where excise-taxable articles are made or kept (Sec. 152). The Secretary of Finance must prescribe rules on production processes to secure sanitary output and safeguard revenue; these rules may allow appointment of third parties to monitor production/removal processes and volumes, and may exclude exciseable goods from duty-free barter transactions.
RA 11346 creates Sec. 263-A: Selling of Heated Tobacco Products and Vapor Products at a Price Lower Than the Combined Excise and Value-Added Taxes. Any person who sells heated tobacco products and vapor products for less than the combined excise and VAT is punished by a fine of 10 times the amount of excise plus VAT but not less than P100,000 and imprisonment of not less than 2 years but not more than 4 years. It also provides that classification disputes are resolved through revenue regulations.
For sugar-sweetened beverages: 50% of total excise tax revenue is earmarked—80% to PhilHealth for implementing RA 11223 (Universal Health Care Act) and 20% allocated nationwide for medical assistance and the Health Facilities Enhancement Program (HFEP), requirements determined by DOH. For alcohol products: similarly, 50% of total excise tax revenue is earmarked—80% to PhilHealth and 20% for medical assistance/HFEP.
Sec. 288-A(D) (as provided in the text for heated tobacco and vapor) assigns 80% PhilHealth and 20% HFEP/medical assistance; but for tobacco products under Sec. 288-A(C), it states that: an annual amount equivalent to 5% of the revenue collected from excise tax on tobacco products (not exceeding P4 billion) is allocated and divided among provinces producing barley and native tobacco based on volume of leaf production, with 50% to the provincial government and 50% to municipalities/cities proportionately based on their production volume. Separately, 50% of the total excise tax collection from tobacco products goes to 80% PhilHealth and 20% nationwide medical assistance/HFEP.