Excise Tax Restructuring on Alcohol and Tobacco

Policy, legal basis, and covered reforms

Republic Act No. 10351 amends excise tax provisions of Republic Act No. 8424 (National Internal Revenue Code of 1997), as amended by Republic Act No. 9334, by changing excise tax rates and classifications for alcohol and tobacco (Sections 1–5).
Republic Act No. 10351 strengthens tax administration duties of the Commissioner regarding licenses, internal revenue stamps, identification markings, labeling, and automated volume-counters (Section 6).
Republic Act No. 10351 subjects specified imported excisable products even when destined for freeports, with limited exemptions for government-owned and operated duty-free shops (Section 7).
Republic Act No. 10351 directs allocation of incremental revenues from excise tax on tobacco products under Republic Act No. 8240 and provides allocations for universal health care and other health purposes from remaining incremental revenue (Section 8).
Republic Act No. 10351 provides transitory funding for displaced workers and requires annual reporting and congressional oversight (Sections 9–11).

Definitions and excise tax computation rules

Section 141 defines “Spirits or distilled spirits” as the substance known as ethyl alcohol, ethanol or spirits of wine, including all dilutions, purifications and mixtures thereof, from whatever source and by whatever process produced, and includes whisky, brandy, rum, gin, and vodka, and other similar products or mixtures.
Section 141 defines “Proof spirits” as liquor containing one-half (1/2) of its volume of alcohol of a specific gravity of seven thousand nine hundred and thirty-nine ten thousandths (0.7939) at 15 degrees centigrade (15°C), and provides that a “proof liter” means a liter of proof spirits.
Section 141 defines “Net retail price” for distilled spirits as the price at which the distilled spirits is sold on retail in at least five (5) major supermarkets in Metro Manila (or at least five in the region for products marketed outside Metro Manila), excluding the amount intended to cover the applicable excise tax and the value-added tax.
Section 142 defines “Net retail price” for sparkling wines/champagnes as the retail price in at least five (5) major supermarkets in Metro Manila (or the region for products marketed outside Metro Manila), excluding the amount intended to cover excise tax and VAT.
Section 143 defines “Net retail price” for fermented liquors as the retail price in at least five (5) major supermarkets in Metro Manila (or in the region for products marketed outside Metro Manila), excluding excise tax and VAT.
Section 145 defines “Net retail price” for cigarettes as the retail price in at least five (5) major supermarkets in Metro Manila for brands marketed nationally (or in the region for brands marketed only outside Metro Manila), excluding excise tax and VAT.
Section 141 requires that tax on distilled spirits be proportionally increased for any strength over proof, and the tax attaches as soon as the substance exists as such, whether later separated, purified, or transformed.

Distilled spirits, wine, and fermented liquor taxes

Section 141 imposes excise tax on distilled spirits based on proof, with:
- Effective January 1, 2013: an ad valorem tax of 15% of net retail price (excluding excise tax and VAT) per proof, plus a specific tax of PHP 20.00 per proof liter.
- Effective January 1, 2015: an ad valorem tax of 20% of net retail price per proof, plus a specific tax of PHP 20.00 per proof liter.
- The specific tax rate of PHP 20.00 per proof liter is increased by 4% every year effective January 1, 2016, through revenue regulations issued by the Secretary of Finance.
Section 141 taxes medicinal preparations, flavoring extracts, and all other preparations (except toilet preparations) of which excluding water, distilled spirits form the chief ingredient under the same tax as the chief ingredient.
Section 142 imposes excise taxes on wines per liter of volume capacity effective January 1, 2013:
- Sparkling wines/champagnes (regardless of proof) with net retail price per bottle of 750 ml:
  - PHP 500.00 or less: PHP 250.00
  - More than PHP 500.00: PHP 700.00
- Still and carbonated wines with 14% alcohol by volume or less: PHP 30.00
- Still and carbonated wines with more than 14% but not more than 25%: PHP 60.00
Section 142 requires wine rates to increase by 4% every year effective January 1, 2014 through revenue regulations issued by the Secretary of Finance.
Section 142 classifies fortified wines (more than 25% alcohol by volume) as distilled spirits, and defines fortified wines as natural wines to which distilled spirits are added to increase alcohol strength.
Section 143 imposes excise tax on fermented liquors (beer, lager beer, ale, porter, and other fermented liquors) except tuba, basi, tapuy and similar fermented fermented liquors according to net retail price thresholds:
- Effective January 1, 2013: PHP 15.00 per liter if net retail price ≤ PHP 50.60, otherwise PHP 20.00 per liter
- Effective January 1, 2014: PHP 17.00 if ≤ PHP 50.60, otherwise PHP 21.00
- Effective January 1, 2015: PHP 19.00 if ≤ PHP 50.60, otherwise PHP 22.00
- Effective January 1, 2016: PHP 21.00 if ≤ PHP 50.60, otherwise PHP 23.00
- Effective January 1, 2017: PHP 23.50 per liter for all fermented liquors
Section 143 increases fermented liquor rates by 4% every year effective January 1, 2018 through revenue regulations issued by the Secretary of Finance, and provides that the increase applies to the relevant applicable tax rates for fermented liquors affected by a downward reclassification provision.
Section 143 imposes a special rate on fermented liquors brewed and sold at micro-breweries or small establishments (such as pubs and restaurants): PHP 28.00 per liter effective January 1, 2013, increasing by 4% every year effective January 1, 2014 through revenue regulations.

Cigars, cigarettes, and tobacco excise taxes

Section 144 imposes an excise tax on tobacco products of PHP 1.75 per kilogram effective January 1, 2013 on tobacco categories including:
- Tobacco twisted by hand or reduced to condition to be consumed in any manner other than ordinary drying and curing
- Tobacco prepared or partially prepared (with or without machines/instruments; without pressed or sweetened) except as otherwise provided
- Fine-cut shorts and refuse, scraps, clippings, cuttings, stems and sweepings of tobacco except as otherwise provided
Section 144 imposes PHP 1.50 per kilogram effective January 1, 2013 on tobacco specially prepared for chewing and unsuitable for use in any other manner.
Section 144 increases tobacco excise tax rates by 4% every year effective January 1, 2014 through revenue regulations issued by the Secretary of Finance.
Section 144 allows export or use in manufacture without prepayment of excise tax for certain stemmed/handled tobacco and resulting scrap categories when to be exported or used in manufacture of cigars/cigarettes or other tobacco products, subject to conditions in rules by the Secretary of Finance upon recommendation of the Commissioner.
Section 145 imposes excise taxes on cigars:
- Effective January 1, 2013: ad valorem 20% of net retail price (excluding excise tax and VAT) per cigar, plus specific tax PHP 5.00 per cigar
- The specific tax PHP 5.00 is increased by 4% effective January 1, 2014 through revenue regulations issued by the Secretary of Finance.
Section 145 imposes excise tax on cigarettes packed by hand:
- Effective January 1, 2013: PHP 12.00 per pack
- Effective January 1, 2014: PHP 15.00 per pack
- Effective January 1, 2015: PHP 18.00 per pack
- Effective January 1, 2016: PHP 21.00 per pack
- Effective January 1, 2017: PHP 30.00 per pack
- Rates increase by 4% every year effective January 1, 2018 through revenue regulations.
Section 145 restricts duly registered cigarettes packed by hand to be packed in twenties and other packaging combinations of not more than twenty.
Section 145 defines “Cigarettes packed by hand” as cigarette sticks packed using individual persons’ hands, not through mechanical device, machine, or equipment.
Section 145 imposes excise tax on cigarettes packed by machine based on net retail price per pack:
- Effective January 1, 2013: PHP 12.00 per pack if net retail price ≤ PHP 11.50, otherwise PHP 25.00
- Effective January 1, 2014: PHP 17.00 if ≤ PHP 11.50, otherwise PHP 27.00
- Effective January 1, 2015: PHP 21.00 if ≤ PHP 11.50, otherwise PHP 28.00
- Effective January 1, 2016: PHP 25.00 if ≤ PHP 11.50, otherwise PHP 29.00
- Effective January 1, 2017: PHP 30.00 per pack for all machine-packed cigarettes
- Rates increase by 4% every year effective January 1, 2018 through revenue regulations.
Section 145 restricts duly registered machine-packed cigarettes to be packed in twenties and other packaging combinations of not more than twenty.

Tax classification, price surveys, and validation

Section 141 requires that the net retail price for distilled spirits be determined by the Bureau of Internal Revenue through a price survey under oath.
Section 141 requires that the methodology and pertinent documents used in the latest price survey be submitted to the Congressional Oversight Committee on the Comprehensive Tax Reform Program created under Republic Act No. 8240.
Section 141 provides that understatement of the suggested net retail price by as much as 15% of the actual net retail price makes the manufacturer or importer liable for additional excise tax equivalent to the tax due and the difference between understated suggested net retail price and actual net retail price.
Section 141 requires that distilled spirits introduced after the effectivity of Republic Act No. 10351 be initially taxed according to their suggested net retail prices.
Section 141 requires BIR validation of suggested net retail price after three (3) months and revalidation after nine (9) months, to finally determine the correct tax based on validated net retail price.
Section 141 requires that all distilled spirits existing at effectivity be taxed based on the rates above using the latest price survey conducted by BIR.
Section 142 applies the same structure for sparkling wines/champagnes: BIR price survey under oath, submission of methodology/documents to the Congressional Oversight Committee, 15% understatement liability, initial tax classification using suggested net retail price for new products, BIR validation at three (3) months and revalidation at nine (9) months, and classification of all existing products using the latest price survey.
Section 143 applies the same structure for fermented liquors: BIR price survey under oath, methodology/documents submission to the Congressional Oversight Committee, 15% understatement liability, initial tax classification of newly introduced products using suggested net retail price, validation at three (3) months and revalidation at nine (9) months, and classification of all existing fermented liquors using the latest price survey.
Section 143 prohibits any downward reclassification of present categories of fermented liquors registered at the time of effectivity that would reduce the tax imposed or the tax payment thereof.
Section 145 requires that cigarettes introduced after effectivity be initially classified using suggested net retail prices, with BIR validation after three (3) months and revalidation after nine (9) months; BIR must determine net retail price via price survey under oath, submit methodology/documents to the Congressional Oversight Committee, and apply 15% understatement liability.
Section 145 requires that the proper tax classification of cigarettes (whether registered before or after effectivity) be determined every two (2) years from effectivity of Republic Act No. 10351, and that all cigarettes in the market at effectivity be classified based on the latest BIR price survey.

Ongoing sworn sales reporting duties

Section 141 requires manufacturers and importers of distilled spirits to submit to the Commissioner a sworn statement of volume of sales for each brand for the three-month period immediately preceding:
- within thirty (30) days from effectivity, and
- within the first five (5) days of every third month thereafter.
Section 142 requires manufacturers and importers of wines to submit a sworn statement of volume of sales for each brand for the preceding three-month period within thirty (30) days from effectivity, and within the first five (5) days of every month thereafter.
Section 143 requires every brewer or importer of fermented liquor to submit a sworn statement of volume of sales for each brand for the preceding three-month period within thirty (30) days from effectivity, and within the first five (5) days of every month thereafter.
Section 144 requires manufacturers and importers of tobacco products to submit, within thirty (30) days from effectivity and within the first five (5) days of every month thereafter, a sworn statement of volume of sales for each brand for the preceding three-month period.
Section 145 requires manufacturers and importers of cigars and cigarettes to submit, within thirty (30) days from effectivity and within the first five (5) days of every month thereafter, a sworn statement of volume of sales for cigars and/or cigarettes sold for the preceding three-month period.

Bonds, export/import conditions for tobacco

Section 144 prohibits removing tobacco products manufactured in the Philippines and produced for export from their place of manufacture or exporting them without posting an export bond equivalent to the amount of the excise tax due thereon if sold domestically.
Section 144 allows transfer of tobacco products for export from place of manufacture to a bonded facility upon posting of a transfer bond prior to export.
Section 144 prohibits allowing entry of tobacco products imported into the Philippines and destined for foreign countries without posting a bond equivalent to the amount of customs duty, excise and value-added taxes due thereon if sold domestically.

Tax administration measures on stamps and counters

Section 6 makes it the duty of the Commissioner to prescribe, provide, and distribute licenses; internal revenue stamps; unique, secure and nonremovable identification markings (codes or stamps) affixed to or forming part of unit packets and packages and outside packaging of cigarettes and bottles of distilled spirits; labels and other forms; certificates; bonds; records; invoices; books; receipts; and appliances/apparatus used in administering Bureau jurisdiction laws.
Section 6 requires internal revenue stamps (bar code, “fusion design,” or other markings) to be firmly and conspicuously affixed or printed on each pack of cigars and cigarettes and bottles of distilled spirits subject to excise tax, in the manner and form prescribed by the Commissioner and approved by the Secretary of Finance.
Section 6 requires cigarette and alcohol manufacturers to install automated volume-counters of packs and bottles to deter over-removals and misdeclaration of removals.

Imported products into freeports and duty-free shops

Section 131(A) requires that importation of cigars and cigarettes, distilled spirits, fermented liquors and wines into the Philippines is subject to all applicable taxes, duties, charges including excise taxes, even if destined for tax and duty-free shops.
Section 131(A) applies this requirement to such products brought directly into the Subic Special Economic and Freeport Zone (Republic Act No. 7227), the Cagayan Special Economic Zone and Freeport (Republic Act No. 7922), the Zamboanga City Special Economic Zone (Republic Act No. 7903), and other freeports later established by law.
Section 131(A) provides an exemption from all applicable duties only for importations of cigars and cigarettes, distilled spirits, fermented liquors and wines made directly by a government-owned and operated duty-free shop such as Duty-Free Philippines (DFP).
Section 131(A) requires confiscated articles to be destroyed using the most environmentally friendly method available in accordance with rules and regulations to be promulgated by the Secretary of Finance upon recommendation of the Commissioners of Customs and Internal Revenue.

Incremental revenue allocations for tobacco and health

Section 288(B) allocates 15% of the incremental revenue collected from the excise tax on tobacco products under Republic Act No. 8240 for provinces producing burley and native tobacco, in accordance with the volume of tobacco leaf production.
Section 288(B) mandates that the tobacco incremental-revenue fund be exclusively used for programs to promote economically viable alternatives for tobacco farmers and workers, including:
- providing inputs, training, and other support for farmers shifting to production of agricultural products other than tobacco, including high-value crops, spices, rice, corn, sugarcane, coconut, livestock and fisheries
- financial support for displaced or ceased tobacco producers
- cooperative programs assisting farmers in planting alternative crops or implementing other livelihood projects
- livelihood programs and projects developing tourism potential of tobacco-growing provinces
- infrastructure projects such as farm to market roads, schools, hospitals, and rural health facilities
- agro-industrial projects enabling farmers to manage and subsequently own projects, including post-harvest and secondary processing such as cigarette manufacturing and by-product utilization
Section 288(B) requires the Department of Budget and Management, in consultation with the Department of Agriculture, to issue rules and regulations governing allocation and disbursement not later than one hundred eighty (180) days from effectivity.
Section 288(C) requires that after deducting allocations under Republic Act Nos. 7171 and 8240, 80% of the remaining balance of the incremental revenue from Republic Act No. 10351 be allocated for universal health care under the National Health Insurance Program, the attainment of millennium development goals and health awareness programs.
Section 288(C) requires that 20% of the remaining balance be allocated nationwide, based on political and district subdivisions, for medical assistance and health enhancement facilities programs, with the annual requirements determined by the Department of Health (DOH).

Transitory worker support and annual reporting

Section 9 provides that special financial support for displaced workers in alcohol and tobacco industries must be allocated and included in appropriations under DOLE to finance unemployment alleviation programs.
Section 9 provides that special support must also be allocated in appropriations under TESDA to finance training and retooling programs for displaced workers, to be included in the General Appropriations Acts for Fiscal Years 2014 to 2017.
Section 10 requires DBM, DA, DOH, and PhilHealth to submit detailed reports on expenditure of earmarked amounts to the Oversight Committee under Republic Act No. 8240 on the first week of August every year.
Section 10 requires simultaneous publication of the reports in the Official Gazette and on the agencies’ websites.
Section 11 establishes a Congressional Oversight Committee composition that includes the Agriculture and Health Committee Chairpersons of the Senate and the House of Representatives as part of the four (4) members to be appointed from each House.
Section 11 directs the Committee, upon receipt of annual reports from DBM, DA, DOH, DOLE, PhilHealth, and TESDA, to review and ensure proper implementation of Republic Act No. 10351 regarding expenditures of earmarked funds.
Section 11 mandates that starting the third quarter of Calendar Year 2016, the Committee must review the impact of the tax rates provided under Republic Act No. 10351.

Implementing rules, separability, and repeal

Section 12 requires the Secretary of Finance, upon recommendation of the Commissioner of Internal Revenue and in consultation with the Department of Health, to promulgate necessary implementing rules and regulations within one hundred eighty (180) days upon effectivity.
Section 14 repeals, amends, or modifies all laws, decrees, ordinances, rules and regulations, executive or administrative orders, and other presidential issuances inconsistent with any provision of Republic Act No. 10351.

Penalties for misdeclaration and prohibited conduct

Section 141 provides that any distilled spirits manufacturer or importer who misdeclares or misrepresents any pertinent data or information in the required sworn statement is penalized, upon final findings by the Commissioner, by summary cancellation or withdrawal of the permit to engage in business as manufacturer or importer.
Section 141 provides that any corporation, association, or partnership liable for acts or omissions in violation of Section 141 is fined treble the amount of deficiency taxes, surcharges and interest assessed under the Section.
Section 141 provides that any person liable for acts or omissions prohibited under Section 141 is criminally liable and penalized under Section 254 of the National Internal Revenue Code of 1997; any person who willfully aids or abets is criminally liable as principal.
Section 141 provides that if the offender is not a citizen of the Philippines, he shall be deported immediately after serving the sentence, without further proceedings for deportation.
Section 142 applies the same administrative and criminal consequences to wine manufacturers and importers who misdeclare or misrepresent in the required sworn statement: summary cancellation/withdrawal of permit upon final findings, treble fine of deficiency taxes/surcharges/interest for corporations/partnerships/associations, criminal liability under Section 254, and deportation for non-citizen offenders immediately after serving sentence.
Section 143 applies the same consequences to brewers or importers of fermented liquors who misdeclare or misrepresent: summary cancellation/withdrawal of permit upon final findings; treble fine for corporations/associations/partnerships; criminal liability under Section 254 for persons and accomplices; and immediate deportation after sentence for non-citizens.
Section 144 applies the same consequences to manufacturers and importers of tobacco products who misdeclare or misrepresent: summary cancellation/withdrawal of permit upon final findings; treble fine for corporations/associations/partnerships; criminal liability under Section 254; and immediate deportation after sentence for non-citizens.
Section 145 applies the same consequences to manufacturers and importers of cigars and cigarettes who misdeclare or misrepresent: summary cancellation/withdrawal of permit upon final findings; treble fine for corporations/associations/partnerships; criminal liability under Section 254; and immediate deportation after sentence for non-citizens.