Excise Tax on Tobacco, Vapor, Sugar Beverages

Policy and purpose provisions

The law increases excise taxes on tobacco products, and imposes excise tax on heated tobacco products and vapor products.
The law increases penalties for violations involving articles subject to excise tax.
The law earmarks portions of total excise tax collection from sugar-sweetened beverages, alcohol, tobacco, heated tobacco, and vapor products for universal health care through the Philippine Health Insurance Corporation (PhilHealth) under Republic Act No. 11223.

Definitions and taxable product coverage

“Heated tobacco products” are tobacco products consumed by heating to release an aerosol inhalable without burning or combustion; they include liquid solutions and gels that are part of the product and are heated to generate an aerosol (Section 147).
“Vapor products” are liquid solutions or gels containing nicotine that transform into an aerosol without combustion through a mechanical heating element or battery/circuit used to heat the solution/gel; they include cartridges, tanks, and devices without cartridges/tanks; they also include electronic nicotine and non-nicotine delivery systems (ENDS/ENNDS) with e-liquids/refills containing up to sixty-five milligrams per milliliter (65mg/ml) nicotine (Section 147).
Heated tobacco products must be packed in twenties and other packaging combinations of not more than twenty (20) units (Section 144).
Cigars and cigarettes are defined by how they are consumed: combustion of tobacco for cigars and cigarettes, with cigars wrapped in leaf tobacco and cigarettes wrapped in paper or other material (Section 147).

Excise tax on heated tobacco and vapor

Heated tobacco products are levied with excise tax under Section 144(B) at PHP 10.00 per pack of twenty (20) units or packaging combinations of not more than twenty (20) units, effective January 1, 2020.
The excise tax rate for heated tobacco products increases by 5% every year effective January 1, 2021, through revenue regulations issued by the Secretary of Finance (Section 144(B)).
Heated tobacco excise tax compliance includes: (1) manufacturers, distributors, and importers must submit sworn sales volume by brand within thirty (30) days from effectivity and within the first five (5) days of every month thereafter for the prior three-month period immediately preceding; and (2) misdeclaration/misrepresentation triggers administrative permit cancellation/withdrawal after final findings by the Commissioner (Section 144(B)).
Heated tobacco excise tax requires export bond equivalent to the amount of excise tax due if sold domestically; export may instead use transfer to a bonded facility upon posting of a transfer bond (Section 144(B)).
Heated tobacco importation for entry to foreign-country distribution requires a bond equivalent to customs duty, excise and value-added taxes due thereon if sold domestically (Section 144(B)).
Heated tobacco products sold/distributed/transfered by any person to minors and any selling/purchasing/receiving/usage by minors are prohibited; “Minor” means any person below eighteen (18) years old (Section 144(B)).
Heated tobacco health warnings must comply with the Graphic Health Warnings Law (Republic Act No. 10643), and violations of health warning provisions carry the same penalties as Republic Act No. 10643 (Section 144(B)).
The law imposes excise tax on vapor products under Section 144(C) with the following per-unit schedule effective January 1, 2020 (Section 144(C)(1)):
- 0.00 ml to 10.00 ml: PHP 10.00
- 10.01 ml to 20.00 ml: PHP 20.00
- 20.01 to 30.00 ml: PHP 30.00
- 30.01 to 40.00 ml: PHP 40.00
- 40.01 to 50.00 ml: PHP 50.00
- More than 50.00 ml: PHP 50.00 plus PHP 10.00 for every additional 10.00 ml (i.e., per additional 10.00 ml beyond 50.00 ml)
Vapor excise tax increases by 5% every year effective January 1, 2021, through revenue regulations issued by the Secretary of Finance (Section 144(C)(2)).
Vapor product compliance includes requiring packages to indicate actual volume in milliliters of liquid solutions and gels; manufacturers, distributors, and importers must submit sworn brand sales volume within thirty (30) days from effectivity and within the first five (5) days of every month thereafter for the prior three-month period immediately preceding (Section 144(C)).
Vapor export bond and import entry bond rules mirror heated tobacco: (1) export removal/export requires an export bond equivalent to excise tax due if sold domestically (or transfer to bonded facility via transfer bond); and (2) importation for foreign-country destination requires a bond equivalent to customs duty, excise and VAT due if sold domestically (Section 144(C)).
The law prohibits vapor product sale/distribution/transfer to minors and any purchasing/receiving/usage by minors; it defines “Minor” as below eighteen (18) years old (Section 144(C)).
Unit packets and outside wrapping of vapor products must carry health warnings compliant with Republic Act No. 10643, with violations punishable with the same penalties provided by Republic Act No. 10643 (Section 144(C)).
The law recognizes a scientific-evidence statement: the law acknowledges the need for further scientific evidences on health impact of heated tobacco products and vapor products (Section 144(B)-(C)).

Excise tax rates for cigars and cigarettes

Cigars are taxed under Section 145(A) with an excise tax schedule effective January 1, 2013:
- Ad valorem: 20% of net retail price (excluding excise tax and value-added tax) per cigar
- Specific tax: PHP 5.00 per cigar
For cigars, the specific tax rate of PHP 5.00 increases by 5% effective January 1, 2024 through revenue regulations issued by the Secretary of Finance (Section 145(A)(2)).
“Net retail price” for cigars is the retail price sold in at least five (5) major supermarkets in Metro Manila (for brands marketed nationally) or in at least five (5) major supermarkets in the region (for brands marketed only outside Metro Manila), excluding the amount intended to cover applicable excise tax and VAT; this net retail price is validated by BIR through a price survey (Section 145(A)).
For cigars, BIR validates net retail price through a biannual price survey under oath and submits the methodology and documents to the Congressional Oversight Committee on the Comprehensive Tax Reform Program created under Republic Act No. 8240 (Section 145(A)).
“Major supermarkets” are those with the highest annual gross sales as determined by the BIR and exclude retail outlets/kiosks/convenience or sari-sari stores; no two (2) supermarkets in the list may be affiliated/branches of each other (Section 145(A)).
Cigarettes packed by hand are taxed per pack with the following schedule (Section 145(B)):
- January 1, 2020: PHP 45.00 per pack
- January 1, 2021: PHP 50.00 per pack
- January 1, 2022: PHP 55.00 per pack
- January 1, 2023: PHP 60.00 per pack
Cigarettes packed by hand increase by 5% every year effective January 1, 2024 via revenue regulations by the Secretary of Finance (Section 145(B)).
Duly registered cigarettes packed by hand must be packed in twenties and other packaging combinations of not more than twenty (20) (Section 145(B)).
“Cigarettes packed by hand” refers to packaging using a person’s hands, not mechanical devices/equipment (Section 145(B)).
Cigarettes packed by machine are taxed per pack with the same schedule of PHP 45.00 (2020), PHP 50.00 (2021), PHP 55.00 (2022), PHP 60.00 (2023), then 5% annual increases effective January 1, 2024 via revenue regulations (Section 145(C)).
Duly registered cigarettes packed by machine must be packed in twenties and other packaging combinations of not more than twenty (20) (Section 145(C)).

Cigars/cigarettes and compliance rules

Cigars and cigarettes are subject to a price-floor compliance rule: understatement of the suggested net retail price by as much as fifteen percent (15%) of the actual net retail price makes the manufacturer/importer liable for additional excise tax equivalent to the tax due plus differences (Section 145(C)).
Cigars and cigarettes must comply with export-bond rules and bonded-facility transfer options for export removal/export (Section 145(C)).
Cigars and cigarettes imported for foreign-country destination require posting of a bond equivalent to customs duty, excise and VAT due if sold domestically (Section 145(C)).
Cigars and cigarettes require sworn sales/removals reporting: manufacturers and importers must 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 and removals for the prior three-month period immediately preceding (Section 145(C)).
Misdeclaration/misrepresentation in the sworn statements triggers summary cancellation/withdrawal of permit to engage in business as manufacturer or importer after final findings by the Commissioner (Section 145(C)).
Corporate/partnership liability for violations includes a fine of treble the aggregate amount of deficiency taxes, surcharges and interest assessed under the section (Section 145(C)).
Selling tobacco products at a price lower than the combined excise and VAT imposed is prohibited; the seller is punished with:
- a fine of not less than ten (10) times the excise plus VAT due, but not less than PHP 200,000.00 nor more than PHP 500,000.00, and
- imprisonment of not less than four (4) years but not more than six (6) years (Section 145(C)).
The BIR must issue a revenue regulation prescribing a cigarette floor price / minimum cigarette price taking into account the sum of excise and value-added taxes (Section 145(C)).
Offenses under the section trigger criminal liability under Section 254 of the NIRC, and willful aiders/abettors are criminally liable as principals; non-citizens are deported immediately after serving sentence (Section 145(C)).

Inspection fee and excise control administration

For inspection under Chapter IV, the law imposes the following inspection fees (Section 146):
- PHP 0.50 per thousand cigars or fraction thereof
- PHP 0.10 per thousand cigarettes or fraction thereof
- PHP 0.10 per thousand unit of heated tobacco products
- PHP 0.01 per milliliter of liquid used in vapor products
- PHP 0.02 per kilogram of leaf tobacco or fraction thereof
- PHP 0.03 per kilogram or fraction thereof, of scrap and other manufactured tobacco
The BIR supervises establishments where excise-taxable articles are made or kept; the Secretary of Finance must prescribe rules for sanitary production, revenue safeguarding, and may allow appointment of third parties to monitor production and removal processes and volumes, and may exclude exciseable goods from duty-free barter transactions (Section 152).

Permits, information, and unlawful possessions

Manufacturers, indentors, wholesalers, and importers of apparatus or mechanical contrivance specially for excise-tax article manufacture must give written information to the Commissioner before removal from place of manufacture or the customs house regarding nature/capacity, time of removal, destination place, and the person who will use it; the apparatus/contrivance cannot be set up, dismantled, or transferred without a written permit from the Commissioner (Section 164).
A written permit from the Commissioner is required before any person may import, manufacture, or sell the apparatus/mechanical contrivance, or sell related items like cigarette paper in bobbins/rolls, cigarette tipping paper, or cigarette filter tips (Section 164).
No permit to sell is granted unless the name and address of the prospective buyer is first submitted to and approved by the Commissioner (Section 164).
Sellers must keep records of stock and disposal of such items with respective addresses as approved by the Commissioner, and buyers must keep records of stock and consumption for inspection by internal revenue officers (Section 164).
It is unlawful to possess cigarette paper in bobbins or rolls, cigarette tipping paper, or cigarette filter tips without corresponding authority from the Commissioner (Section 260).
For each act/omission under Section 260, the convicted offender is punished with a fine of not less than PHP 1,500,000.00 but not more than PHP 15,000,000.00, and imprisonment of not less than six (6) years and one (1) day but not more than twelve (12) years (Section 260).
Unlawful shipping/transport/removal of liquors or tobacco products under false name/brand or as imitation is punished per act/omission with a fine of not less than PHP 1,500,000.00 but not more than PHP 15,000,000.00 and imprisonment of not less than six (6) years and one (1) day but not more than twelve (12) years (Section 262).

Unpaid excise tax and related penalties

It is punishable for a person who owns and/or is found in possession of imported excise-taxable articles with unpaid excise tax, or in possession of imported tax-exempt articles not legally issued to them (Section 263).
Penalties under Section 263(a)-(d) depend on the appraised value including duties and taxes, determined under Republic Act No. 10863 (Customs Modernization and Tariff Act):
- If appraised value does not exceed PHP 250,000.00: fine PHP 100,000.00–PHP 200,000.00 and imprisonment 60 days–100 days; if appraised value does not exceed PHP 10,000.00, penalty is fine of PHP 12,000.00 only (Section 263(a)).
- If appraised value exceeds PHP 250,000.00 but does not exceed PHP 500,000.00: fine PHP 1,000,000.00–PHP 2,000,000.00 and imprisonment 2–4 years (Section 263(b)).
- If appraised value exceeds PHP 500,000.00 but does not exceed PHP 1,000,000.00: fine PHP 3,000,000.00–PHP 4,000,000.00 and imprisonment 4–6 years (Section 263(c)).
- If appraised value exceeds PHP 1,000,000.00: fine PHP 10,000,000.00–PHP 20,000,000.00 and imprisonment 10–12 years (Section 263(d)).
For locally manufactured articles subject to excise tax with unpaid excise tax, or tax-exempt locally manufactured articles not legally issued: the penalty is a fine of not less than ten (10) times the amount of excise tax due and not less than PHP 1,000,000.00, plus imprisonment of not less than five (5) years but not more than eight (8) years (Section 263).
For manufacturers/importers/owners/persons in charge who remove or allow unlawful removal of excise-taxable articles from production/bonded warehouses without excise tax payment in the required manner, and for those who knowingly aid/abet removal or conceal articles after illegal removal: for the first offense, the penalty is fine of not less than ten (10) times the amount of excise tax due but not less than PHP 50,000,000.00, plus imprisonment of not less than five (5) years but not more than eight (8) years (Section 263).
Mere unexplained possession of excise-taxable articles whose excise tax has not been paid in accordance with law is punishable under Section 263 (Section 263).

New offense: price below excise+VAT

Any person who sells heated tobacco products and vapor products at a price lower than the combined excise and value-added taxes is punished with:
- a fine of ten (10) times the amount of excise tax plus value-added tax, but not less than PHP 100,000.00, and
- imprisonment of not less than two (2) years but not more than four (4) years (Section 263-A).
If there is a question whether a nicotine product is a heated tobacco product or vapor product for taxation purposes, the tax classification is resolved through revenue regulations issued by the Secretary of Finance (Section 263-A).

Stamps offenses and special manufacturer liability

Offenses relating to stamps under Section 265 are punished with:
- fine of less than PHP 10,000,000.00 but not more than PHP 500,000,000.00, and imprisonment of not less than five (5) years but not more than eight (8) years (Section 265).
The enumerated stamp offenses include: making/importing/selling/using/possessing without authority dies for printing stamps/labels/tags; reusing stamps; erasing cancellation marks; altering cancellation marks; possessing false/counterfeit/restored/altered stamps/labels/tags; selling boxes with false/spurious/counterfeit stamps; giving away/accepting containers where stamps are not completely destroyed (Section 265(a)-(e)).
Cumulative possession of false/counterfeit/recycled tax stamps in excess of PHP 50,000,000.00 is punished with a fine of PHP 500,000,000.00 or up to ten (10) times the value of illegal stamps seized, whichever is higher, and imprisonment of not less than ten (10) years but not more than fifteen (15) years (Section 265).
If cumulative value of false/counterfeit/recycled tax stamps does not exceed PHP 10,000.00, the penalty is fine of PHP 12,000.00 (Section 265).
Any violation of Section 164 (including mere possession of apparatus/mechanical contrivance for manufacture of cigarettes or related cigarette paper/tipping paper) for which no permit was obtained from the Commissioner is punishable with a fine of PHP 15,000,000.00–PHP 50,000,000.00 and imprisonment of 12–20 years (Section 265-B).

Allocation for universal health care funds

Section 288-A establishes the disposition of revenues from excise taxes on sugar-sweetened beverages, alcohol, tobacco products, heated tobacco products, and vapor products.
For sugar-sweetened beverages excise tax revenue: 50% of total revenue collected is allocated exclusively as follows (Section 288-A(A)):
- 80% to PhilHealth for implementation of Republic Act No. 11223 (Universal Health Care Act of 2019)
- 20% nationwide based on political and district subdivisions for medical assistance and the Health Facilities Enhancement Program (HFEP), with annual requirements determined by DOH
For alcohol excise tax revenue: 50% of total revenues collected is allocated exclusively as follows (Section 288-A(B)):
- 80% to PhilHealth for implementation of Republic Act No. 11223
- 20% nationwide based on political and district subdivisions for medical assistance and HFEP, annual requirements determined by DOH
For tobacco products excise tax revenue: the total revenues collected are distributed as follows (Section 288-A(C)):
- Up to 5% annually of the tobacco excise tax revenue collection, but not exceeding PHP 4,000,000,000.00, is allocated and divided among provinces producing barley and native tobacco according to volume of tobacco leaf production; 50% goes to the provincial government and 50% to municipalities/cities of the beneficiary province based on volume of tobacco production (Section 288-A(C)(1)).
- The allocated tobacco farmer/workers fund is exclusively used for programs promoting economically viable alternatives for tobacco farmers/workers, including specified inputs/training/support for shifting to alternative agricultural products; financial support for displaced farmers; cooperative projects for alternative crops/livelihood; livelihood/tourism enhancement in tobacco-growing provinces; infrastructure projects (farm-to-market roads, bridges, schools, hospitals, rural health facilities, irrigation systems); and agro-industrial projects enabling tobacco farmers to manage/own projects such as post-harvest and secondary processing including cigarette manufacturing and by-product utilization (Section 288-A(C)(1)(a)-(f)).
- 50% of total tobacco excise tax collection is allocated exclusively (Section 288-A(C)(2)):
  - 80% to PhilHealth for Republic Act No. 11223
  - 20% nationwide based on political and district subdivisions for medical assistance and HFEP, annual requirements determined by DOH
For heated tobacco products and vapor products excise tax revenue: the total revenues collected are allocated exclusively (Section 288-A(D)):
- 80% to PhilHealth for implementation of Republic Act No. 11223
- 20% nationwide based on political and district subdivisions for medical assistance and HFEP, annual requirements determined by DOH
For tobacco-producing province allocations under Section 288-A(C)(1) and related disbursement: the DBM, in consultation with DOA and National Tobacco Administration, issues rules and regulations governing allocation and disbursement not later than one hundred eighty (180) days from effectivity of this Act.
The allocation for Universal Health Care is based on the collection of the second fiscal year preceding the current fiscal year (Section 288-A).

Virginia tobacco beneficiary support amendment

The law amends Section 289 to provide special financial support for beneficiary provinces producing Virginia tobacco by constituting and collecting funds from 15% of excise taxes on locally manufactured Virginia-type cigarettes, but not exceeding PHP 17,000,000,000.00, notwithstanding Section 3 of Republic Act No. 7171 (Section 289).
Virginia tobacco beneficiary provinces are those under Republic Act No. 7171, and to qualify they must have average annual production of Virginia leaf tobacco of not less than one million kilos (Section 289).
The DBM each year determines beneficiary provinces and computed share using NTA records of tobacco acceptances at tobacco trading centers for the immediate past year (Section 289).
The Secretary of Budget and Management retains annually the 15% share equivalent (subject to the PHP 17,000,000,000.00 cap) to be remitted to qualified beneficiary provinces under Republic Act No. 7171 (Section 289).
The law requires implementation in accordance with guidelines of Memorandum Circular No. 61-A dated November 28, 1993, amending Memorandum Circular No. 61, prescribing guidelines for implementing Republic Act No. 7171; the funds must be utilized to advance self-reliance and expand viable alternatives for Virginia tobacco farmers and workers through the specified cooperative, livelihood, agro-industrial, infrastructure, tourism, and financial assistance programs (Section 289).
The law requires consultation with concerned provincial officials for identification of projects to be financed (Section 289).

Implementing rules; repeals; separability; effectivity

The Department of Finance (DOF), Department of Health (DOH), Department of Budget and Management (DBM), and PhilHealth must promulgate necessary implementing rules and regulations within thirty (30) days from the effectivity of this Act (Section 17).
The repealing clause repeals Section 8 of Republic Act No. 8240 and repeals/amends any inconsistent laws, decrees, ordinances, rules and regulations, executive or administrative orders, and other presidential issuances (Section 18).
If any provision is declared invalid or unconstitutional, the remaining provisions remain in full force and effect (Section 19).
The Act takes effect on January 1, 2020 following complete publication in the **Official