Increase in Excise Taxes on Alcohol and Tobacco

Scope of amended excise tax rules

Section 141 governs excise taxes on distilled spirits.
Section 142 governs excise taxes on wines.
Section 143 governs excise taxes on fermented liquors (beer and similar fermented liquors), except tuba, basi, tapuy and similar fermented liquors.
Section 144 imposes a tax on specified tobacco products, measured per kilogram.
Section 145 imposes excise taxes on cigars and cigarettes, including different treatment for packed by hand and packed by machine.
Section 131 governs payment and treatment rules for excise taxes on imported articles, including cigarettes and alcohol products entering freeports and duty-free shops.
Section 288 governs earmarking and disposition of incremental revenues from (1) prior documentary stamp increases under Republic Act No. 7660, (2) incremental revenues from Republic Act No. 8240, and (3) incremental revenues from excise taxes on alcohol and tobacco products.

Implementation mechanics and BIR role

The Secretary of Finance shall promulgate the necessary rules and regulations for effective implementation of the Act, upon recommendation of the Commissioner of Internal Revenue (Section 8).
The Bureau of Internal Revenue determines net retail price through a price survey conducted by the Bureau itself or by the National Statistics Office when deputized for the purpose by the Bureau of Internal Revenue (Sections 141, 142, 143, and 145).
Manufacturers and importers must submit sworn statements of sales for each brand for defined periods, and these submissions are made to the Commissioner (Sections 141, 142, 143, 144, and 145).
If a manufacturer or importer knowingly misdeclares or misrepresents pertinent data in the required sworn statements, the Act authorizes summary cancellation or withdrawal of the permit to engage in the relevant business after final findings by the Commissioner (Sections 141, 142, 143, 144, and 145).

Distilled spirits: tax rates and brand rules

Section 141 imposes excise tax on distilled spirits collected subject to Section 133 (Section 141).
Spirits produced from the sap/juice specified in Section 141(a)(a) (nipa, coconut, cassava, camote, or buri palm; or juice/syrup/sugar of the cane where the materials are produced commercially in the country of processing) are taxed at P11.65 per proof liter (Section 141(a)(a)).
Spirits produced from raw materials other than those enumerated in Section 141(a)(a) are taxed based on net retail price per bottle of seven hundred fifty milliliter (750 ml.) volume capacity, excluding excise tax and VAT, with these proof-liter rates:
- Less than P250.00: P126.00 per proof liter (Section 141(a)(b)(1)).
- P250.00 up to P675.00: P252.00 per proof liter (Section 141(a)(b)(2)).
- More than P675.00: P504.00 per proof liter (Section 141(a)(b)(3)).
Medicinal preparations, flavoring extracts, and other preparations (except toilet preparations) where distilled spirits form the chief ingredient (excluding water) are taxed at the same rate as such chief ingredient (Section 141(a)(c)).
The tax on proof spirits is proportionally increased for any strength over proof spirits; tax attaches to the substance as soon as it comes into existence as such, whether later separated, purified, mixed, or transformed during original or subsequent production (Section 141).
The Act defines “Spirits or distilled spirits” as ethyl alcohol, ethanol, or spirits of wine, including all dilutions, purifications, and mixtures from whatever source and by whatever process produced, including whisky, brandy, rum, gin, and vodka and similar products/mixtures (Section 141).
The Act defines “Proof spirits” as liquor containing one-half (1/2) of its volume of alcohol of specific gravity of 0.7939 at 15 degrees centigrade (15°C); “a proof liter” means a liter of proof spirits (Section 141).
The Act defines “Net retail price” as the retail price in specified major supermarkets (excluding excise tax and VAT), determined by BIR price survey, with geography-based supermarket counts:
- At least ten (10) major supermarkets in Metro Manila for brands marketed nationwide (Section 141).
- At least five (5) major supermarkets in the region for brands marketed outside Metro Manila (Section 141).
Variants and new brands introduced after the Act’s effectivity are taxed under proper classification based on suggested net retail price, with a floor rule that classification cannot be lower than the highest classification of any variant of the same brand (Section 141).
A “variant of a brand” is a brand with a modifier prefixed and/or suffixed to the root name (Section 141).
A “new brand” is a brand registered after the date of effectivity of R.A. No. 8240 (Section 141).
A “suggested net retail price” governs initial classification of new brands, and BIR must validate in stages:
- After three (3) months from product launch, BIR validates and determines correct tax bracket (Section 141).
- After eighteen (18) months from validation, BIR revalidates against the net retail price at the time of revalidation to finally determine the correct tax bracket (Section 141).
BIR’s net retail price validation uses definitions tied to intended retail markets:
- Metro Manila for nationwide-market brands; other regions for regional-market brands (Section 141).
Brands introduced between January 1, 1997 and December 31, 2003 remain in the classification determined by BIR as of December 31, 2003, and that classification for those brands cannot be revised except by an Act of Congress (Section 141).
Any downward reclassification of present categories of existing duly registered brands that reduces tax imposed or payment is prohibited (Section 141).
The classification of each brand based on average net retail price as of October 1, 1996 remains in force until revised by Congress (Section 141).
The Act increases rates of tax imposed under Section 141 by eight percent (8%) every two years starting January 1, 2007 until January 1, 2011 (Section 141).
Willful understatement of the suggested net retail price by as much as fifteen percent (15%) of the actual net retail price makes the manufacturer liable for additional excise tax equal to the tax due and the difference between understated suggested net retail price and actual net retail price (Section 141).
Manufacturers and importers must submit sworn statements:
- Within thirty (30) days from the Act’s effectivity, and within the first five (5) days of every third month thereafter, submitting volume of sales per brand for the three-month period immediately preceding (Section 141).
Criminal and administrative consequences include:
- A corporation, association, or partnership is fined treble the amount of deficiency taxes, surcharges, and interest assessable under Section 141 (Section 141).
- Any person liable for acts/omissions prohibited in Section 141 is criminally liable and penalized under Section 254 of the Code; willful aiders/abettors are criminally liable as principals (Section 141).
- If the offender is not a citizen of the Philippines, the offender shall be deported immediately after serving the sentence, without further proceedings for deportation (Section 141).

Wines: tax rates and staged validation

Section 142 imposes excise taxes on wines per liter of volume capacity (Section 142).
Sparkling wines/champagnes are taxed per liter regardless of proof based on net retail price per bottle (excluding excise tax and VAT):
- P500.00 or less: P145.60 (Section 142(a)(1)).
- More than P500.00: P436.80 (Section 142(a)(2)).
Still wines with 14% alcohol by volume or less are taxed at P17.47 per liter (Section 142(b)).
Still wines with more than 14% but not more than 25% alcohol by volume are taxed at P34.94 per liter (Section 142(c)).
Fortified wines with more than 25% alcohol by volume are taxed as distilled spirits (Section 142).
Fortified wines are natural wines to which distilled spirits are added to increase alcohol strength (Section 142).
Net retail price for wines is determined by BIR through price surveys (or by the National Statistics Office when deputized), measured using:
- At least ten (10) major supermarkets in Metro Manila for brands marketed nationwide (Section 142).
- At least five (5) major supermarkets in the region for brands marketed outside Metro Manila (Section 142).
Variant and new-brand rules mirror distilled spirits: variants introduced after the Act’s effectivity are classified based on suggested net retail price with a minimum floor based on the highest classification of any variant of the same brand (Section 142).
A variant of a brand is a modifier-prefixed and/or suffixed brand to the root name (Section 142).
A new brand is a brand registered after the date of effectivity of R.A. No. 8240 (Section 142).
Suggested net retail price controls staged BIR validation for new wines:
- After three (3) months from product launch: BIR validates and determines the correct tax bracket (Section 142).
- After eighteen (18) months from validation: BIR revalidates against net retail price at the time of revalidation to finally determine tax bracket (Section 142).
Wines introduced between January 1, 1997 and December 31, 2003 remain classified as of December 31, 2003, and those classifications for the specified periods cannot be revised except by an Act of Congress (Section 142).
The tax rates under Section 142 increase by eight percent (8%) every two years starting January 1, 2007 until January 1, 2011 (Section 142).
Any downward classification of present categories of existing duly registered wines that reduces tax imposed or payment is prohibited (Section 142).
The classification based on average net retail price as of October 1, 1996, including brands registered and commercially produced/marketed on or after that date and continuing thereafter, remains until revised by Congress (Section 142).
Manufacturers and importers must submit sworn statements:
- Within thirty (30) days from the Act’s effectivity, and within the first five (5) days of every month thereafter, submitting volume of sales per brand for the three-month period immediately preceding (Section 142).
Misdeclaration consequences include:
- A knowingly misdeclaring or misrepresenting manufacturer or importer is penalized by summary cancellation or withdrawal of permit to engage in business as manufacturer or importer of wines upon discovery (Section 142).
- Corporations/associations/partnerships are fined treble deficiency taxes, surcharges, and interest assessable under Section 142 (Section 142).
- Persons are criminally liable and penalized under Section 254, and willful aiders/abettors are criminally liable as principals (Section 142).
- Non-citizen offenders are deported immediately after serving the sentence, without further proceedings (Section 142).

Fermented liquors (beer) and special cases

Section 143 levies, assesses, and collects excise tax on beer, lager beer, ale, porter and other fermented liquors, except tuba, basi, tapuy and similar fermented liquors (Section 143).
Taxes apply per liter of volume capacity based on net retail price (excluding excise tax and VAT):
- Less than P14.50: P8.27 per liter (Section 143(a)).
- P14.50 up to P22.00: P12.30 per liter (Section 143(b)).
- More than P22.00: P16.33 per liter (Section 143(c)).
Fermented liquors brewed and sold at micro-breweries or small establishments such as pubs and restaurants are taxed at the rate in Section 143(c) (Section 143).
Variants and new brands introduced after the Act’s effectivity are taxed under proper classification based on suggested net retail price, with classification not lower than the highest classification of any variant of the same brand (Section 143).
A variant of a brand refers to a brand with a modifier prefixed and/or suffixed to the root name (Section 143).
A new brand is a brand registered after the date of effectivity of R.A. No. 8240 (Section 143).
Suggested net retail price drives staged BIR validation for new fermented liquors:
- After three (3) months from product launch: BIR validates suggested net retail price against the net retail price and determines the correct tax bracket (Section 143).
- After eighteen (18) months from such validation: BIR revalidates against the net retail price at time of revalidation to finally determine tax bracket (Section 143).
Brands introduced between January 1, 1997 and December 31, 2003 remain in classification as determined by BIR as of December 31, 2003 and cannot be revised except by an Act of Congress (Section 143).
Net retail price is determined by BIR price survey (or by NSO deputized) and uses supermarket counts:
- At least twenty (20) major supermarkets in Metro Manila for brands marketed nationally (Section 143).
- At least five (5) major supermarkets in the region for brands marketed outside Metro Manila (Section 143).
The classification of each brand based on average net retail price as of October 1, 1996, including brands registered and commercially produced/marketed on or after that date and continuing after the Act’s effectivity, remains until revised by Congress (Section 143).
The tax rates under Section 143 increase by eight percent (8%) every two years starting January 1, 2007 until January 1, 2011 (Section 143).
Any downward classification of present categories of existing duly registered brands that reduces tax imposed or payment is prohibited (Section 143).
Brewers and importers must submit sworn statements:
- Within thirty (30) days from the Act’s effectivity and within the first five (5) days of every month thereafter, submitting volume of sales per brand for the three-month period immediately preceding (Section 143).
Penalties for misdeclaration include:
- Knowingly misdeclaring or misrepresenting in the sworn statement is penalized by summary cancellation or withdrawal of permit to engage in business as brewer or importer of fermented liquor upon violating Section 143 (Section 143).
- Corporations/associations/partnerships are fined treble the aggregate deficiency taxes, surcharges, and interest assessable under Section 143 (Section 143).
- Persons are criminally liable and penalized under Section 254; aiders/abettors are liable as principals (Section 143).
- Non-citizen offenders are deported immediately after serving the sentence without further deportation proceedings (Section 143).

Tobacco products: kilogram tax and rate increases

Section 144 imposes a tax of P1.00 per kilogram on specified tobacco products (Section 144).
The P1.00 per kilogram rate applies to:
- Tobacco twisted by hands or reduced into a condition to be consumed in any manner other than the ordinary mode of drying and curing (Section 144(a)).
- Tobacco prepared or partially prepared with or without machines/instruments or without being pressed or sweetened, except as otherwise provided (Section 144(b)).
- Fine-cut shorts and refuse, scraps, clippings, cuttings, stems and sweepings of tobacco, except as otherwise provided (Section 144(c).
Stemmed leaf tobacco, tobacco prepared or partially prepared without machines/instruments or without pressing or sweetening, and specified cuttings/refuse resulting from handling or stripping of whole leaf tobacco are transferable/disposable/sellable without prepayment of excise tax if they are to be exported or used in manufacture of cigars/cigarettes or other tobacco products on which excise tax will be paid on the finished product, under conditions prescribed by rules and regulations promulgated by the Secretary of Finance upon recommendation of the Commissioner (Section 144).
Special chewing-preparation tobacco tax is P0.79 per kilogram (Section 144).
The tax rates imposed under Section 144 increase by six percent (6%) every two years starting January 1, 2007 until January 1, 2011 (Section 144).
Manufacturers and importers of tobacco products must submit sworn statements:
- Within thirty (30) days from the Act’s effectivity and within the first five (5) days of every month thereafter, submitting volume of sales per brand for the three-month period immediately preceding (Section 144).
Knowingly misdeclaring or misrepresenting in sworn statements leads to summary cancellation or withdrawal of the permit to engage in business as manufacturer or importer of cigars or cigarettes upon discovery (Section 144).
Corporate penalties are assessed as treble fines tied to deficiency taxes, surcharges, and interest assessable under Section 144 (Section 144).
Criminal penalties follow Section 254 of the Code for persons liable for prohibited acts/omissions, with aiders/abettors liable as principals (Section 144).
Non-citizen offenders are deported immediately after serving the sentence without further deportation proceedings (Section 144).

Cigars and cigarettes: ad valorem and per-pack

Section 145 imposes excise taxes on cigars and cigarettes (Section 145).
Cigars are taxed on an ad valorem basis based on net retail price per cigar (excluding excise tax and VAT) with these rates:
- P500.00 or less: 10% (Section 145(A)(1)).
- More than P500.00: P50.00 plus 15% of net retail price in excess of P500.00 (Section 145(A)(2)).
Cigarettes packed by hand are taxed per pack with scheduled rates:
- Effective January 1, 2005: P2.00 per pack (Section 145(B)).
- Effective January 1, 2007: P2.23 per pack (Section 145(B)).
- Effective January 1, 2009: P2.47 per pack (Section 145(B)).
- Effective January 1, 2011: P2.72 per pack (Section 145(B)).
Cigarettes packed by hand must be packed only in thirties for duly registered/existing brands and new brands thereof (Section 145(B)).
Cigarettes packed by machine are taxed per pack, with rates depending on net retail price (excluding excise tax and VAT) and scheduled effective dates:
- If net retail price below P5.00 per pack:
  - Jan 1, 2005: P2.00; Jan 1, 2007: P2.23; Jan 1, 2009: P2.47; Jan 1, 2011: P2.72 (Section 145(C)(1)).
- If net retail price P5.00 but not exceeding P6.50 per pack:
  - Jan 1, 2005: P6.35; Jan 1, 2007: P6.74; Jan 1, 2009: P7.14; Jan 1, 2011: P7.56 (Section 145(C)(2)).
- If net retail price exceeds P6.50 but does not exceed P10.00 per pack:
  - Jan 1, 2005: P10.35; Jan 1, 2007: P10.88; Jan 1, 2009: P11.43; Jan 1, 2011: P12.00 (Section 145(C)(3)).
- If net retail price above P10.00 per pack:
  - Jan 1, 2005: P25.00; Jan 1, 2007: P26.06; Jan 1, 2009: P27.16; Jan 1, 2011: P28.30 (Section 145(C)(4)).
Variants and new brands introduced after the Act’s effectivity are classified based on suggested net retail price, with a floor rule: classification cannot be lower than the highest classification of any variant of the same brand (Section 145).
A variant of a brand for cigarette variants refers to a brand with a modifier prefixed and/or suffixed to the root name (Section 145).
Machine-packed cigarettes must be packed only in twenties for duly registered/existing brands and new brands (Section 145).
Any downward reclassification of present categories of existing duly registered brands of cigars and cigarettes that reduces tax imposed or payment is prohibited (Section 145).
New brands are brands registered after the date of effectivity of R.A. No. 8240 (Section 145).
Net retail price for cigarettes is defined by BIR price survey (or NSO when deputized), excluding excise tax and VAT, using geography-based supermarket counts:
- At least twenty (20) major supermarkets in Metro Manila for brands marketed nationally (Section 145).
- At least five (5) major supermarkets in the region for brands marketed only outside Metro Manila (Section 145).
Brand classification based on average net retail price as of October 1, 1996 remains until revised by Congress, including brands registered and commercially produced/marketed on or after October 1, 1996 and continuing after the Act’s effectivity (Section 145).
Suggested net retail price drives staged BIR validation for new brands of cigarettes:
- Within three (3) months from product launch: BIR validates suggested net retail price and determines correct tax bracket (Section 145).
- After eighteen (18) months from such validation: BIR revalidates against net retail price at time of revalidation to finally determine tax bracket (Section 145).
- Brands introduced between January 1, 1997 and December 31, 2003 remain in classification determined by BIR as of December 31, 2003, and that classification cannot be revised except by an Act of Congress (Section 145).
Manufacturers and importers of cigars and cigarettes must submit sworn statements:
- Within thirty (30) days from the Act’s effectivity and within the first five (5) days of every month thereafter, submitting volume of sales per brand for the three-month period immediately preceding (Section 145).
Knowingly misdeclaring or misrepresenting in required sworn statements results in summary cancellation or withdrawal of permit to engage in business as manufacturer or importer of cigars or cigarettes upon discovery (Section 145).
Corporate penalties include a fine of treble the aggregate deficiency taxes, surcharges, and interest assessable under Section 145 (Section 145).
Persons liable for prohibited acts/omissions are criminally liable and penalized under Section 254, with aiders/abettors liable as principals (Section 145).
Non-citizen offenders are deported immediately after serving sentence, without further deportation proceedings (Section 145).

Imported articles and duty-free handling

Section 131 requires that excise taxes on imported articles be paid by the owner or importer to Customs Officers conformably with Department of Finance regulations and before release from the customhouse (Section 131(A)).
The person found in possession of articles exempt from excise taxes other than those legally entitled to exemption must pay excise taxes (Section 131(A)).
If tax-free articles are brought into the Philippines by persons/entities/agencies exempt from tax and are subsequently sold/transferred/exchanged to non-exempt persons/entities, the purchasers or recipients are considered importers and are liable for duty and internal revenue tax due on such importation (Section 131(A)).
Cigars and cigarettes, distilled spirits, fermented liquors, and wines imported into the Philippines—even if destined for tax and duty-free shops—are subject to all applicable taxes, duties, charges, including excise taxes due thereon (**Section