Republic of the Philippines
HOUSE OF REPRESENTATIV!
Quezon City, Metro Manila

Fifteenth Congress
First Regular Session

HOUSE BILL No. 2687

Introduced by: Honorable Jocelyn S. Limkaichong _
Honorable George P. Arnaiz
Honorable Pryde Henry A. Teves

EXPLANATORY NOTE

In 2004, the government embarked on a major alcohol and tobacco
excise tax reform to address the flaws of the previous system, which
principally failed to generate desired amount of revenues and serve its
sumptuary objective as well. Non-buoyant revenues due to structural
defects such as the non-indexation of specific tax rates and non-
reclassification of alcohol and tobacco products (more popularly known as
“sin” products) to reflect current prices characterized the previous system

The government does not employ tax policy for revenue generation alone
but it is likewise being used as a powerful tool to affect the behavior of
producers and consumers. Tax policy is employed to control social costs
or regulate activities that are likely to cause negative externalities.
Smoking, for instance is an activity that clearly exhibits harmful effects on
both the smokers and non-smokers and the excise tax is viewed to be an
effective intervention in reducing demand for sin products.

However, the same challenges are still being felt today even with the
passage of a new excise tax law in 2004. The new and current structure
continues to have inherent weaknesses that continue to put revenues at
risk and undermine the role of excise tax as a tool to curb consumption of
tobacco and alcohol products.

More specifically the following problems continue to haunt the current
tobacco and alcohol excise tax system:

1. Presence of multi-tiered structure requires complex rules on product
classification and creates too much room for discretion;


2. Presence of multi-tiered structure is prone to downshifting of
consumption from high-priced to low-priced brands that has
negative consequence both in terms of revenues and in
discouraging consumption;

3. Presence of old and new brands distinction has deprived
government of revenues due to the artificially low tax rates applied
to old brands;

4, Presence of old and new brands distinction makes the structure
inequitable since products having the same price are taxed
differently thus, leading to an unhealthy competition in the market;

5. More importantly, the absence of a provision that allows the specific
tax to track inflation has rendered the tax ineffective in raising
revenues and curbing consumption. While RA 9334 provides for step
increases until 2011, the rates do not necessarily catch up with
inflation. For instance, cumulative inflation from 2005 to 2007 is
17.2%. in 2007, the tax rates for cigarettes were increased by only
12% for the low-priced brands and by 6%, 5% and 4% for the
medium-priced, high-priced and =~ premium-priced _ brands,
respectively.

In order for the excise tax to continue its dual role as a deterrent to the
consumption of these so called “sin” products as well as a source of
revenue, DOF is again spearheading another excise tax reform.

This bill is designed to once and for all address the persistent problems in
the country’s taxation of alcohol and tobacco products. The general
objective of this bill is to make the tax structure simple, effective and
efficient. It specifically seeks to minimize, if not completely eliminate
opportunities for discretion on price; it will enhance the revenue
generation to augment the financial resources of government and
effective tool in curbing the consumption of alcohol and tobacco.

This bill maintains the specific form of excise taxation because it is easier
to administer, it does not provide incentive for manufacturers and
importer to undervalue their products and it is useful in internalizing the
negative externalities from drinking and smoking since the damage
caused by alcohol and tobacco products is dependent more on the quality
consumed than on the price of these products.

This bill also addresses the issue of unfair competition between
manufacturers of locally-produced and of imported alcohol products.

This bill seeks to move from the current multi-tiered and complex
structure and adopt a unitary excise tax system for each category of
alcohol (distilled spirits, fermented liquors, wine) and tobacco products
(tobacco, cigar and cigarettes). But as a more pragmatic strategy, it is


proposed that a two-step increase in the rates for cigarettes to avoid a
negative impact on revenues as we envisioned if a unitary structure will
be immediately adopted.

For cigarettes, we are endorsing a two-rate structure of P8.00 and P14.00,
per pack, for the initial year, and a uniform rate of P14.00 per pack of
cigarette for the second year.

For fermented liquor, the rates will be unified at P21.52 per liter. A three-
year adjustment period in the tax rates for distilled spirits will be
undertaken to unify the tax rate at P150.00 per proof liter on the third
year.

The proposed bill is estimated to generate additional revenues on the
initial year ranging from P19 to 21 billion.

GE P. ARNAIZ
_____ Representative epresentative
1® District, Oriental Negros 2" District, Oriental Negros



Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City, Metro Manila

Fifteenth Congress
First Regular Session

HOUSE BILLNO. 2687

Introduced by : Honorable JOCELYN S. LIMKAICHONG
Honorable GEORGE P. ARNAIZ
Honorable PRYDE HENRY A. TEVES

AN ACT
RESTRUCTURING THE EXCISE TAX ON ALCOHOL AND
TOBACCO PRODUCTS

Be it enacted by the Senate and the House of Representatives of.

Congress of thi ilippines in session assembled:

SECTION 1. Section 141 of the National Internal Revenue Code of
1997, as amended by Republic Act No. 9334, is hereby further amended
to read as follows:

“SEC 141. Distilled Spirits. - On distilled spirits, there shall be
collected, subject to the provisions of Section 133 of this Code,
excise taxes IN ACCORDANCE WITH ALCOHOL CONTENT as
follows:

(a) 45% ALCOHOL BY VOLUME AND LESS
YEAR 1 — P30.00 PER PROOF LITER
YEAR 2 - P80.00 PER PROOF LITER
YEAR 3 - P150.00 PER PROOF LITER
PROVIDED, THAT, ON THE FOURTH YEAR
AND EVERY YEAR THEREAFTER, THE EXCISE TAX
RATES PRESCRIBED HEREIN SHALL BE ADJUSTED

TO ITS PRESENT VALUE USING AN APPROPRIATE
PRICE INDEX FOR ALCOHOLIC DRINKS, AS


PUBLISHED BY THE NATIONAL STATISTICS
OFFICE (NSO).”

(b) MORE THAN 45% ALCOHOL BY VOLUME --
P150.00 PER PROOF LITER

PROVIDED, THAT, ON THE FOURTH YEAR
AFTER THE EFFECTIVITY OF THIS ACT AND EVERY
YEAR THEREAFTER, THE EXCISE TAX RATES
PRESCRIBED HEREIN SHALL BE ADJUSTED TO ITS
PRESENT VALUE USING AN APPROPRIAE PRICE
INDEX FOR ALCOHOLIC DRINKS, AS PUBLISHED
BY THE NATIONAL STATISTICS OFFICE (NSO).”

["a) If produced from the sap of nipa, coconut, cassava,
camote, or buri palm or form the juice, syrup or sugar of the cane,
provided such materials are produced commercially in the country
where they are processed into distilled spirits per proof liter, Eleven
pesos and sixty-five centavos (P11.65)]

["b) If produced from raw materials other than those
enumerated in the preceding paragraph, the tax shall be in
accordance with the net retail price per bottle of seven hundred fifty
milliliter (750 ml.) volume capacity (excluding the excise tax and
the value-added tax) as follows”]

("(1) Less than two hundred and fifty pesos (P250.00) - One
hundred twenty six pesos (P126.00) per proof liter;]

((2) Two hundred and fifty pesos (P250.00) up to Six
hundred and seventy-five pesos (P675.00) - Two hundred Fifty-two
pesos (P252.00), per proof liter; and]

[*(3) More than Six hundred and seventy-five Pesos (P675.00)
~ Five hundred four pesos (P504.00), per proof liter.]

(c) Medicinal preparations, flavoring extracts, and all other
Preparations, except toilet preparations, of which
excluding water, distilled spirits form the chief
ingredient, shall be subject to the same tax as such
chief ingredient.

“This tax shall be proportionally increased for any strength of
the spirits taxed over proof spirits, and the tax shall attach to this
Substance as soon as it is in existence as such, whether it be
Subsequently separated as pure or impure spirits, or transformed
into any other substances either in the process of original
production or by any subsequent process.


“Spirits or distilled spirits” is the substance known as ethy!
alcohol, ethanol or spirits of wine, including all dilutions,
purifications and mixtures thereof, from whatever source, by
whatever process, produced, and shall include whisky, brandy, rum,
gin and vodka, and other similar products of mixtures.

“Proof Spirits” is 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 fifteen degrees
centigrade (15°C). A ‘proof liter’ means a liter of proof spirits.

[“Net retail price”, as determined by the Bureau of Internal
Revenue through a price survey to be conducted by the Bureau of
Internal Revenue itself, or by the National Statistics Office when
deputized for the purpose by the Bureau of Internal Revenue, shall
mean the price at which the distilled spirits is sold on retail in at
least ten (10) major supermarkets in Metro Manila, excluding the
amount intended to cover the applicable excise tax and the value-
added tax. For brands which are marketed outside Metro Manila, the
“net retail price’ shall mean the price at which the distilled spirits
is sold in at least five (5) major supermarkets in the region
excluding the amount intended to cover the applicable excise tax
and the value-added tax.]

['Variants of existing brands and variants of new brands
which are introduced in the domestic market after the effectivity of
this Act shall be taxed under the proper classification thereof based
on their suggested net retail price: Provided, however, that such
classification shall not, in any case, be lower than the highest
classification of any variant of that brand.]

[* A ‘variant of a brand’ shall refer to a brand on which a
modifier is prefixed and/or suffixed to the root name of the brand.]

[" New brands, as defined in the immediately following
Paragraph, shall initially be classified according to their suggested
net retail price. Willful understatement of the suggested net retail
price by as much as fifteen percent (15%) of the actual net retail
pr8ice shall render the manufacturer liable for additional excise tax
equivalent to the tax due and difference between the understated
suggested net retail price and the actual net retail price.]

[“ ‘New brand’ shall mean a brand registered after the date
of effectivity of R.A. No. 8240.]

[* ‘Suggested net retail price’ shall mean the net retail
Price at which new brands, as defined above, of locally
manufactured or imported distilled spirits are intended by the

6


manufacturer or importer to be sold on retail in mayor
supermarkets or retail outlets in Metro Manila for those marketed
nationwide, and in other regions, for those with regional markets.
At the end of three (3) months from the product launch, the Bureau
of Internal Revenue shall validate the suggested net retail price as
defined herein and determine the correct tax bracket to which a
particular new brand of distilled spirits, as defined above shall be
classified. After the end of eighteen (18) months from such
validation, the Bureau of Internal Revenue shall revalidate the
initially validated net retail price against the net retail price of the
time of revalidation in order to finally determine the correct tax
bracket which a particular new brand of distilled spirits shall be
classified: Provided, however, that brands of distilled spirits
introduced in the domestic market between January 1, 1997 and
December 31, 2003 shall remain in the classification under which
the Bureau of Internal Revenue has determined them to belong as
of December 31, 2003. Such classification of new brands and
brands introduced between January 1, 1997 and December 31,
2003 shall not be revised except by an Act of Congress.]

[" The rates of tax imposed under this Section shall be
increase by eight percent (8%) every two years starting on January
1, 2007.]

[" Any downward reclassification of present categories, for tax
purposes, of existing brands of distilled spirits duly registered at the
time of effectivity of this Act which will reduce the tax imposed
herein, or the payment thereof, shall be prohibited.]

[* The classification of each brand of distilled spirits based on
the average net retail price as of October 1, 1996, as set forth in
Annex ‘A’, including the classification of brands for the same
Products which, although not set forth in said Annex ‘A’, were
registered and were being commercially produced and marketed on
or after October 1, 1996, and which continue to be commercially
produced and marketed after the effectivity of this Act, shall remain
in force until revised by Congress.]

“Manufacturers and importers of distilled spirits shall, within
thirty (30) days from the effectivity of this Act, and within the first
five (5) days of every third month thereafter, submit to the
Commissioner a sworn statement of the volume of sales for each
particular brand of distilled of spirits sold at his establishment for
the three-month period immediately preceding.

“Any manufacturer or importer who, in violation of this
Section, knowingly misdeclares or misrepresents in his or its sworn
statement her required any pertinent date or information shall
upon final findings by the Commissioner that the violation was



committed, be penalized by a summary cancellation or withdrawal
of his or its permit to engage in business as manufacturer or
importer of distilled spirits.

“Any corporation, association or partnership liable for any of
the acts or omissions in violation of this Section shall be fined treble
the amount of deficiency taxes, surcharges and interest which may
be assessed pursuant to this Section.

“Any person liable for any of the Acts or omission prohibited
under this Section shall be criminally liable and penalized under
Section 254 of this Code. Any person who willfully aids or abets in
the commission of any such act or omission shall be criminally liable
in the same manner as the principal.

“If the offender is not a citizen of the Philippines, he shall be
deported immediately after serving the sentence, without further
proceedings for deportation.

SEC. 2. Section 142 of the National Internal Revenue Code of
(1997), as amended by Republic Act No. 9334, is hereby further amended
to read as follows:

“SEC. 142. Wines. - On wines, there shall be collected per
liter of volume capacity, the following taxes:

“(a) Sparkling wines/champagnes regardless of proof [, if the
net retail price per bottle (excluding the excise tax and the value
added tax) is:] - THREE HUNDRED PESO (P300.00);

["(1) Five hundred pesos (P500.00) or less - One hundred
forty-five pesos and sixty centavos (P145.60); and]

["(2) More than Five hundred pesos (P500.00) ~ Four hundred
thirty-six pesos and eighty centavos (P436.80)]

[°(b) Still wines containing fourteen percent (14%) of alcohol
by volume or less, Seventeen pesos and forty-seven centavos
(P17.47)]; and

“(c) Still Wines containing more than fourteen percent (14%)
but not more than twenty-five percent (25%) of alcohol by volume,
[Thirty-four pesos and ninety-four centavos (P34.94).]

“(b) STILL WINES, REGARDLESS OF PROOF - FIFTY
PESOS PROVIDED, THAT, A YEAR AFTER THE EFFECTIVITY OF
THIS ACT AND EVERY YEAR THEREAFTER, THE EXCISE TAX
RATES PRESCRIBED HEREIN SHALL BE ADJUSTED TO ITS
PRESENT VALUE USING AN APPROPRIATE PRICE INDEX FOR


ALCOHOLIC DRINKS, AS PUBLISHED BY THE NATIONAL
STATISTICS OFFICE (NSO).”

“Fortified wines containing more than twenty-five percent
(25%) of alcohol by volume shall be taxed as distilled spirits.
‘Fortified wines’ shall mean natural wines to which distilled spirits
are added to increase their alcohol strength.

["Net retail price, as determined by the Bureau of Internal
Revenue through a price survey top be conducted by the Bureau of
Internal Revenue itself, or the National Statistics Office when
deputized for the purpose by the Bureau of Internal Revenue, shall
mean the price at which wine is old ion retail in at least ten (10)
major supermarkets in Metro Manila, excluding the amount
intended to cover the applicable excise tax and the value-added tax,
for brands which are marketed outside Metro Manila, the net retail
price shall mean the price at which the wine spirits is sold in at least
five (5) major supermarkets in the region excluding the amount
intended to cover the applicable excise tax and the value-added tax.]

[variants of existing brands and variants of new brands
which are introduced in the domestic market after the effectivity of
this Act shall be taxed under the proper classification thereof based
on their suggested net retail price: Provided, however, that such
classification shall not, in any, case, be lower than the highest
classification of any variant of that brand.]

[“A ‘variant of a brand’ shall refer to a brand on which a
modifier is prefixed and/or suffixed to the root name of the brand.]

["New brands, as defined in the immediately following
paragraph, shall initially be classified according to their suggested
retail price.”]

[“ ‘New brand’ shall mean a brand registered after the date of
effectivity of R.A. No. 8240.”]

[" “Suggested net retail price’ shall mean the net retail price
at which new brands, as defined above, of locally manufactured or
imported wines are intended by the manufacturer or importer to be
sold on retail in major supermarkets or retail outlets in Metro Manila
for those marketed nationwide, and in other regions, for those with
regional markets. At the end of the three (3) months from the
Product launch, the Bureau of Internal Revenue shall validate the
Suggested retail price of the new brand against the net retail price
as defined herein and determine the correct tax bracket under
which a particular new brand of wine, as defined above, shall be
classified. After the end of eighteen (18) months from such
validation, the Bureau of Internal Revenue shall validate the initially


validated net retail price against the net retail price as of the time of
revalidation in order to finally determine the correct tax bracket
which a particular new brand of wines shall be classified: Provided,
however, That brands of wines introduced in the domestic market
between January 1, 1997 and December 31, 2003 shall remain in
the classification under which the Bureau of Internal Revenue has
determined them to belong as of December 31, 2003. Such
classification of new brands and brands introduced between January
1, 1997 and December 31, 2003 shall not be revised except by any
Act of Congress.]

[The rates of tax imposed under this Section shall be
increased by eight percent (8%) every two years starting on
January 1, 2007 until January 1, 2011.]

[Any downward reclassification of present categories, for tax
purposes, of existing brands of wines duly registered at the time of
the effectivity of this Act which will reduce the tax imposed herein,
or the payment hereof, shall be prohibited.]

[The classification of each branch of wines based on the
average net retail price as of October 1, 1996, as set forth in Annex
*B’, including the classification of brands for the same products
which, although not set forth in said “Annex B” were registered
and were being commercially produced and marketed after the
effectivity of this Act, shall remain in force until revised by
Congress.]

“Manufacturers and importers of wines shall, within thirty (30)
days from the effectivity of this Act, and within the first five (5)
days of every month thereafter, submit to the Commissioner a
sworn statement of the volume of sales for each particular brand of
wines sold at his establishment for the three month period
immediately preceding.

“Any manufacturer or importer who, in violation of this
Section, knowingly misdeclares or misrepresents in his or its sworn
statement herein required any pertinent data or information shall,
upon discovery, be penalized by a summary cancellation or
withdrawal of his or its permit to engage in business as
manufacturer or importer of wines.

“Any corporation, association or partnership liable for any of
the acts or omissions in violation of this Section shall be fined treble
the amount of deficiency taxes, surcharges and interest which may
be assessed pursuant to this Section.

“Any person liable for any of the acts or omissions prohibited
under this Section shall be criminally liable and penalize under

10


Section 254 of this Code. Any person who willfully aids or abets in
the commission of any such act or omission shall be criminally liable
in the same manner as the principal.

“If the offender is not a citizen of the Philippines, he shall be
deported immediately after serving the sentence, without further
proceedings for deportation.

SEC. 3. Section 143 of the National Internal Revenue Code of
(1997), as amended by Republic Act No. 9334, is hereby further amended
to read as follows:

“SEC. 143. Fermented Liquor. - There shall be levied,
assessed and collected an excise tax on beer, lager beer, ale, porter
and other fermented liquors except tuba, basi, tapuy and similar
fermented liquors [in accordance with the following schedule:] AN
EXCISE TAX EQUIVALENT TO TWENTY-ONE PESOS AND
FIFTY-TWO CENTAVOS (P21.52) PER LITER: PROVIDED,
THAT, A YEAR AFTER THE EFFECTIVITY OF THIS ACT AND
EVERY YEAR THEREAFTER, THE EXCISE TAX RATE
PRESCRIBED HEREIN SHALL BE ADJUSTED TO ITS PRESENT
VALUE USING AN APPROPRIATE PRICE INDEX FOR
ALCOHOLIC DRINKS, AS PUBLISHED BY THE NATIONAL
STATISTICS OFFICE (NSO).”

["If the net retail price (excluding the excise tax and the
value-added tax) per liter of volume capacity is less than Fourteen
pesos and fifty centavos (P14.15), the tax shall be Eight pesos and
twenty-seven centavos (P8.27) per liter]

["(b) If the net retail price (excluding the excise tax and
value-added tax) per liter of volume capacity is Fourteen pesos and
fifty centavos (P14.50) up to Twenty-two pesos (P22.00), the tax
shall be Twelve pesos and thirty centavos (P12.30) per liter]

["(c) If the net retail price (excluding the excise tax and the
value-added tax) per liter of volume capacity is more than Twenty-
two pesos (P22.00), the tax shall be Sixteen pesos and thirty-three
centavos (P16.33) per liter.]

[’Variants of existing brands and variants of new brands which
are introduced in the domestic market after the effectivity of this
Act shall be taxed under the proper classification thereof based on
their suggested net retail price: Provided, however, That such
classification shall not, in any case, be lower than the highest
classification of any variant of that brand.]

TA ‘variant of a brand’ shall refer to a brand on which a
modifier is prefixed and/or suffixed to the root name of the brand.]


["Fermented liquors which are brewed and sold at
microbreweries or small establishments such as pubs and
restaurants shall be subject to the rate in paragraph (c) hereof.]

["New brands, as defined in the immediately following
paragraph, shall initially be classified according to their suggested
net retail price.]

[° ‘New brand’ shall mean a brand registered after the date
of effectivity of R.A. No. 8240.]

[* ‘Suggested net retail price’ shall mean the net retail
price at which new brands, as defined above, of locally
manufactured or imported fermented liquor are intended by the
manufacturer or importer to be sold on retail in major supermarkets
or retail outlets in Metro Manila for those marketed nationwide, and
in other regions, for those with regional markets. At the end of
three (3) months from the product launch, the Bureau of Internal
Revenue shall validate the suggested net retail price of the new
brand against the net retail price as defined herein and determine
the correct tax bracket to which a particular new brand of
fermented liquor, as defined above, shall be classified. After the end
of the eighteen 918] months from such validation, the Bureau of
Internal Revenue shall revalidate the initially validated net retail
price against the net retail price as of the time of revalidation in
order to finally determine the correct tax bracket which a particular
new brand of fermented liquors shall be classified: Provided,
however, That brands of fermented liquors introduced in the
domestic market between January 1, 1997 and December 31, 2003
shall remain in the classification under which the Bureau of Internal
Revenue has determined them to belong as of December 31, 2003.
Such classification of new brands and brands introduced between
January 1, 1997 and December 31, 2003 shall not be revised except
by an Act of Congress.]

[" ‘Net retail price’ as determined by the Bureau of Internal
Revenue through a price survey to be conducted by the Bureau of
Internal Revenue itself, or the National Statistics Office when
deputized for the purpose of Bureau of Internal Revenue, shall
mean the price at which the fermented liquor is old on retail in at
least twenty (20) major supermarkets in Metro Manila (for brands of:
fermented liquor marketed nationally), excluding the amount
intended to cover the applicable excise tax and the value-added tax.
For brands which are marketed outside Metro Manila, the ‘net
retail price’ shall mean the price at which the fermented liquor is
sold in at least five (5) major supermarkets in the region excluding
the amount intended to cover the applicable excise tax and the
value-added tax.]


["The classification of each brand of fermented liquor based on
its average net retail price as of October 1, 1996, as set forth in
Annex ‘€’ , including the classification of brands for the same
products which, although not set forth in said Annex ‘C’, were
registered and were being commercially produced and marketed on
or after October 1, 1996, and which continue to be commercially
produced and marketed after the effectivity of this Act, shall remain
in force until revised by Congress. ]

["The rates of tax imposed under this Section shall be
increased by eight percent 98%] every two years starting on
January 1, 2007 until January 1, 2011.]

[" Any downward reclassification of present categories, for tax
purposes, of existing brands of fermented liquor duly registered at
the time of the effectivity of this Act which will reduce the tax
imposed herein, or the payment thereof, shall be prohibited.]

“Every brewer or importer of fermented liquor shall, within
thirty (30) days from the effectivity of this Act, and within the first
five (5) days of every month thereafter, submit to the commissioner
a sworn statement of the volume of sales for each particular brand
of fermented liquor sold at his establishment for the three-month
period immediately preceding.

“Any brewer or importer who, in violation this Section,
knowingly misdeclares or misrepresents in his or its sworn
statement herein required any pertinent data or information shall be
penalized by a summary cancellation or withdrawal of his or its
permit to engage in business as brewer or importer of fermented
liquor.

“Any corporation, association or partnership liable for any the
acts or omissions in violation of this Section shall be fined treble the
amount of deficiency taxes, surcharges and interest which may be
assessed pursuant to this Section.

“Any person, liable for any of the acts or omissions prohibited
under this Section shall be criminally liable and penalized under
Section 254 of this Code. Any person who willfully aids or abets in
the commission of any such act or omission shall be criminally liable
in the same manner as the principal.

“If the offender is not a citizen of the Philippines, he shall be
deported immediately after serving the sentence, without further
proceedings for deportation.


SEC. 4. Section 144 of the National Internal Revenue Code of the
(1997), as amended by Republic Act No. 9334, is hereby further amended
to read as follows:

“SEC. 144. Tobacco Products. - There shall be collected 2
tax of [One peso (P1.00)] TWO PESOS AND FIFTY CENTAVOS
(P2.50) on each kilogram of the following products of tobacco

a) Tobacco twisted by hand or reduced into a condition to
be consumed in any manner other than the ordinary
mode of drying and curing;

b) Tobacco prepared or partially prepared with or without
the use of any instruments or without being pressed or
sweetened except as otherwise provided hereunder;
and

c)  Fine-cut shorts and refuse, scraps clippings, cuttings,
stems and sweepings of tobacco except as otherwise
provided hereunder.

“Stemmed leaf tobacco, tobacco prepared or partially
prepared with or without the use of any machine or instrument or
without being pressed or sweetened, fine-cut shorts and refuse,
scraps, clippings, cuttings, stems, midribs; and sweepings of
tobacco resulting from the handling or stripping of whole leaf
tobacco shall be transferred, disposed of, or to be use in the
manufacture of cigars, cigarettes, or other tobacco products on
which the excise tax will eventually be paid on the finished product,
under such conditions as may be prescribed in the rules and
regulations promulgated by the Secretary of Finance, upon
recommendation of the Commissioner.

“On tobacco specially prepared for chewing so as to be
unsuitable for use in any other manner, on each kilogram [Seventy-
nine centavos (P0.79)] ONE PESO AND EIGHTY SEVEN
CENTAVOS (P1.87).

[" The rates of tax imposed under this Section shall be
increased by six percent (6%) every two years starting on January
1, 2007 until January 1, 2011.]

“PROVIDED, THAT, A YEAR AFTER THE EFFECTIVITY OF
THIS ACT AND EVERY YEAR THEREAFTER, THE EXCISE TAX
RATES PRESCRIBED HEREIN SHALL BE ADJUSTED ANNUALLY
TO ITS PRESENT VALUE USING AN APPROPRIATE PRICE
INDEX FOR TOBACCO PRODUCTS, AS PUBLISHED BY THE
NATIONAL STATISTICS OFFICE (NSO).”


“Manufacturers and importers of tobacco products shall,
within thirty (30) days from the effectivity of this Act, and within
the first five (5) days of every month thereafter, submit to the
Commissioner a sworn statement of the volume of sales for each
particular brand of tobacco products sold at their establishment for
the three-month period immediately preceding.

“Any manufacturer or importer who, in violation of this
Section, knowingly misdeclares and misrepresents in his or its
sworn statement herein required any pertinent data or information,
shall upon discovery, be penalized by a summary cancellation or
withdrawal of his or its permit to engage in business as
manufacturer or importer of cigars or cigarettes.

“Any corporation, association or partnership liable for any of
the acts or omissions in violation of this Section shall be fined treble
the amount of deficiency taxes, surcharges and interest which may
be assessed pursuant to this Section.

“Any person liable for any of the acts or omissions prohibited
under this Section shall be criminally liable and penalized under
Section 254 of this Code. Any person who willfully aids or abets in
the commission of any such act or omission shall be criminally liable
in the same manner as the principal.

“If the offender is not a citizen of the Philippines, he shall be
deported immediately after serving the sentence, without further
proceedings for deportation.

SEC. 5. Section 145 of the National Internal Revenue Code of
(1997), as amended by Republic Act No. 9334, is hereby further amended
to read as follows:

SEC. 145. Cigars and Cigarettes.

“A) Cigars. - There shall be levied, assessed and

collected on cigars [an ad valorem tax based on the retail
price] A TAX OF 200 per cigar. [ (excluding the excise tax
and the value-added tax) in accordance with the following
schedule:

”1) If the net retail price per cigar is Five hundred pesos
(P500.00) or less, ten percent (10%); and

“2) If the net retail price per cigar (excluding the excise
tax and the value-added tax) is more than Five hundred
pesos (P500.00), Fifty pesos (P50.00) plus fifteen
percent (15%) of the net retail price in excess of Five
hundred pesos (P500.00).]


ROVIDED, THAT, A YEAR AFTER THE EFFECTIVITY
OF THIS ACT AND EVERY YEAR THEREAFTER, THE
EXCISE TAX RATES PRESCRIBED HEREIN SHALL BE
ADJUSTED TO ITS PRESENT VALUE USING AN
APPROPRIATE PRICE INDEX FOR TOBACO PRODUCTS,
AS PUBLISHED BY THE NATIONAL STATISTICS OFFICE
(NSO).”

“B) Cigarettes Packed by Hand. - There shall be levied,
assessed and collected on cigarettes packed by the hand a tax
at the [rates prescribed below:] RATE OF TWO PESOS AND
FORTY-SEVEN CENTAVOS (P2.47) PER PACK.

POVIDED, THAT, A YEAR AFTER THE EFFECTIVITY
OF THIS ACT AND EVERY YEAR THEREAFTER, THE
EXCISE TAX RATES PRESCRIBED HEREIN SHALL BE
ADJUSTED TO ITS PRESENT VALUE USING AN
APPROPRIATE PRICE INDEX FOR TOBACCO PRODUCTS,
AS PUBLISHED BY THE NATIONAL STATISTICS OFFICE
(NSO).”

[“€ffective on January 1, 2005, Two peso (P2.00) per pack;

“Effective on January 1, 2007, Two pesos and twenty-three
centavos (P2.23) per pack;

Effective on January 1, 2009, Two pesos and forty-seven
centavos (P2.47) per pack; and

Effective on January 1, 2011, Two pesos and seventy-two
centavos (P2.72) per pack.]

“Duly registered or existing brands of cigarettes or new

brands thereof packed by hand shall be packed in thirties.

“(C) Cigarettes Packed by Machine. - There shall be

levied, assessed and collected on cigarettes packed by machine a
tax at the rates prescribed below:

"EFFECTIVE ON JANUARY 1, 2011

“(1) IF THE NET RETAIL PRICE (EXCLUDING THE

EXCISE TAX AND THE VALUE-ADDED TAX) IS SIX PESOS AND
FIFTY CENTAVOS (p6.50) AND BELOW PER PACK, THE TAX
SHALL BE EIGHT PESOS (P8.00) PER PACK;

16


“(2) IF THE NET RETAIL PRICE (EXCLUDING THE
EXCISE TAX AND THE VALUE-ADDED TAX) IS MORE THAN SIX
PESOS AND FIFTY CENTAVOS (P6.50) PER PACK, THE TAX
SHALL BE FOURTEEN PESOS (p14.00) PER PACK;

“EFFECTIVE ON JANUARY 1, 2012, THE TAX SHALL BE
FOURTEEN PESOS (P14.00) PER PACK.

“PROVIDED, THAT, THEREAFTER, THE EXCISE TAX
RATES PRESCRIBED HEREIN SHALL BE ADJUSTED ANNUALLY
TO ITS PRESENT VALUE USING AN APPROPRIATE PRICE
INDEX FOR TOBACCO PRODUCTS, AS PUBLISED BY THE
NATIONAL STATISTICS OFFICE (NSO).”

“ALL BRANDS OF CIGARETTES EXISTING IN THE
MARKET AT THE TIME OF THE EFFECTIVITY OF THIS ACT
SHALL BE CLASSIFIED ACCORDINGLY FOR THE PROPER
DETERMINATION OF THE TAX LIABILITY IN ACCORDANCE
WITH THE SCHEDULE PROVIDED ABOVE FOR THE YEAR
COMMENCING JANUARY 1, 2011.

[°(1) If the net retail price (excluding the excise tax and the
value-added tax) is below Five Pesos (P5.00) per pack, the tax shall
be

“Effective on January 1, 2005, Two pesos (P2.00) per pack;

“Effective on January 1, 2007, Two pesos and twenty-three
centavos (P2.23) per pack;

“Effective on January 1, 2009, Two pesos and forty-seven
centavos (P2.47) per pack; and

“Effective on January 1, 2011, Two pesos and seventy-two
centavos (P2.72) per pack; and

“(2) If the net retail price (excluding the excise tax and the
value-added tax) is Five pesos (P5.00) but does not exceed Six
Pesos and fifty centavos (P6.50) per pack, the tax shall be

“Effective on January 1, 2005, Six pesos and thirty-five
centavos (P6.35) per pack;

“Effective on January 1, 2007, Six pesos and seventy-four
centavos (P6.74) per pack;

“Effective on January 1, 2009, Seven pesos and fourteen
centavos (P7.14) per pack; and


“Effective January 1, 2011, Seven pesos and fifty-six centavos
(P7.56) per pack.

“(3) If the net retail price excluding the excise tax and the
value-added tax) exceeds Six pesos and fifty centavos (P6.50) but
does not exceed Ten pesos (P10.00) per pack, the tax shall be

“Effective on January 1, 2005, Ten pesos and thirty-five
centavos (P10.35) per pack;

“Effective on January 1, 2007, Ten pesos and eighty-eight
centavos (P10.88) per pack;

“Effective on January 1, 2009, Eleven pesos and forty-three
centavos (P11.43) per pack; and

“Effective January 1, 2011, Twelve pesos (P12.00) per pack;

(2) If the net retail price (excluding the excise tax and the value-
added tax ) exceeds Six pesos and fifty centavos (P6.50) but does exceed
Ten Pesos (P10.00) per pack, the tax shall be:

“Effective on January 1, 2005, Twenty five pesos (P25.00) per
pack;

“Effective on January 1, 2007, Twenty-six pesos (P26.00) per
pack;

“Effective on January 1, 2009, Twenty-seven pesos (P27.00)
per pack; and

“Effective January 1, 2011, Twenty-eight pesos (P28.00) per
pack;

“Variants of existing brands and variants of new brands of
cigarettes which are introduced in the domestic market after the
effectivity of this Act shall be taxed under the proper classification
thereof based on their suggested net retail price: Provided, however,
That such classification shall not, in any case, be lower than the
highest classification of any variant of that brand.

“A ‘variant of a brand’ shall refer to a brand on which a
modifier is prefixed and/or suffixed to the root name of the brand.

“Duly registered or existing brands of cigarettes or new
brands thereof packed by machine shall only be packed in twenties.

“Any downward reclassification of present categories, for tax
purposed, of existing brands of cigars and cigarettes duly registered


at the time of the effectivity of this Act which will reduce the tax
imposed herein, or the payment thereof, shall be prohibited

“New brands, as defined in the immediately following
paragraph, shall initially be classified according to their suggested
net retail price.

™New brand’ shall mean a brand registered after the date of
effectivity of [R.A. No.8240] THIS ACT.

“Suggested net retail price’ shall mean the net retail price
at which new brands, as defined above, of locally manufactured or
imported cigarettes are intended by the manufacturer or importer to
be sold on retail in major supermarkets or retail outlets in Metro
Manila for those marketed nationwide, and in other regions, for
those with regional markets. At the end of three (3) months from
the product launch, the Bureau of Internal Revenue shall validate
the suggested net retail price of the new brand against the net retail
prices as defined herein and determine the correct tax bracket
under which a particular new brand of cigarette, as defined above,
shall be classified. After the end of eighteen (18) months from such
validation, the Bureau of Internal Revenue shall revalidate the
initially validated net retail price against the net retail price as of the
time of revalidation in order to finally determine the correct tax
bracket under which a particular new brand of cigarettes shall be
classified: [Provided, however, That brands of cigarettes introduced
in the domestic market between January 1, 1997 and December 31,
2003 shall remain in the classification of new brands and brands
introduced between January 1, 1997 and December 31, 2003 shall
not be revised except by an Act of Congress.]

‘Net retail price’, as determined by the Bureau of Internal
Revenue through a price survey to be conducted by the Bureau of
Internal Revenue itself, or by the National Statistics Office when
deputized for the purpose by the Bureau of Internal Revenue, shall
mean the price at which the distilled spirits is sold on retail in at
least twenty (20) major supermarkets in Metro Manila, excluding
the amount intended to cover the applicable excise tax and the
value-added tax. For brands which are marketed outside Metro
Manila, the ‘net retail price’ shall mean the price at which the
distilled spirits is sold in at least five (5) major supermarkets in the
region excluding the amount intended to cover the applicable excise
tax and the value-added tax.

[The classification of each brand of cigarettes based in its
average net retail price as of October 1, 1996, as set forth in the
Annex *“D’, including the classification of brands for the same
products which, although not set forth in said Annex ‘D’, were
registered and were being commercially produced and marketed on

19


or after October 1, 1996, and which continue to be commercially
produced and marketed after the effectivity of this Act, shall remain
in force until revised by Congress.]

* x xX xX x

SEC. 2. Implementing Rules and Regulations. - The Secretary
of Finance shall, upon the recommendation of the Commission of Internal
Revenue, promulgate the necessary rules and regulations for the effective
implementation of this Act.

SEC. 3. Repealing Clause. - All laws, decrees, executive orders,
rules and regulations or parts thereof which are contrary to our
inconsistent with this Act are hereby repealed, amended or modified
accordingly.

SEC. 4. Effectivity. - This Act shall take effect fifteen (15) days
after its publication in the Official Gazette or in any two newspapers of
general circulation, whichever comes earlier.

Approved.

20