Philippines’ House of Representatives approves bill on second reading to hike tobacco excise tax collection by P66 billion in 5 years

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The Philippines House of Representatives approved on second reading a proposed bill that aims to rationalize excise tax rates on tobacco and vapor products and raise an additional P66 billion in five years.

Rep. Mikaela Angela Suansing of Nueva Ecija said that once enacted into law, House Bill 11360 could lead to an “aggregate revenue recovery of P66 billion across five years.”

Suansing said in her sponsorship of HB 11360 that while the 2013 Sin Tax Law initially succeeded in reducing smoking rates and generating additional revenue until 2021, excise tax revenue collections have since declined annually.

She cited data showing that excise tax collections declined annually since 2021, dropping from P176 billion to P160 billion in 2022 and further to P135 billion in 2023.

“Illicit cigarettes pose a serious threat to peace and order as they fund illegal activities,” Suansing said.

“While it is in the country’s legitimate interest to impose higher taxes on sin products, we need to be cognizant of its unintended consequences,” Suansing said.

Under the existing law, the tax rates for cigarettes, heated tobacco products and vapor products increase by 5 percent annually.  House Bill 11360 proposes that the tax rate will increase by 2 percent every even-numbered year starting January 1, 2026, and by 4 percent every odd-numbered year starting January 1, 2027.

The tax rate increases will continue until December 31, 2035. As a safeguard against frontloading, the Department of Finance, in consultation with the Bureau of Internal Revenue, will set a reasonable threshold for removals.

Vapor products containing any liquid substance, regardless of nicotine content, including nicotine-free liquids or similar products, whether classified as nicotine salt or freebase nicotine, will be subject to an increased and unified tax of P66.15 per milliliter, the same rate as a cigarette pack of 20 sticks. Heated tobacco products will see a 15 percent excise tax increase from P35 to P41 per pack of 20 sticks.

The bill also grants the President the authority, upon the recommendation of the Secretary of Finance, to increase the tax rate to 5 percent if the actual national government deficit exceeds the programmed deficit equivalent to 2 percent of the gross domestic product of the previous year.

After a decade, a review of the tax’s impact on revenue collections, health costs, and smoking prevalence will be conducted.

Deputy Speaker and co-sponsor Rep. Kristine Singson-Meehan of Ilocos Sur cited a study by the Food and Nutrition Research Institute that showed adult smoking prevalence climbed and adolescent smoking doubled from 2.3 percent in 2021 to 4.8 percent in 2023.

“The increasing tax rate is no longer effective in reducing smoking rates,” Singson-Meehan said.

She also pointed out that legal tobacco volume and revenue collections continue to “decline despite yearly tax increases,” while “illicit trade is continuing to increase.”

“More than 2 million Filipinos depend on tobacco for their livelihood. Declining government collections affect government revenue and reduce funding for national health programs and infrastructure development,” Meehan said.

Cagayan de Oro City Rep. Rufus Rodriguez, another co-sponsor of the bill, said the objectives of the Sin Tax Law, which are to raise government revenues and protect public health, have come under immense strain from illicit trade.  “I’m very much concerned because Mindanao is the first island so much affected by illicit trade,” he said.

Rodriguez said the billions in lost revenues due to illicit trade have negatively impacted government funding for health programs under the Universal Health Care Law.

“To address this issue, it is imperative for the government to recalibrate its existing revenue measures and ensure our tax laws do not unduly incentivize, nor give premium to, illicit traders at the expense of legitimate businesses,” he said.

Photo from X, @RepRufus: Cagayan de Oro City Rep. Rufus Rodriguez

Rodriguez also underscored that the bill seeks to combat rampant misdeclaration of vapor products to evade taxes. “In vapor products, these unscrupulous producers misdeclare their kind of vapor product.”

He said that some producers declare nicotine salt products as freebase nicotine, which has a lower tax rate under the current law, highlighting the necessity of imposing a unified tax rate on both types.

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