THIRTEENTH CONGRESS OF THE REPUBLIC 
OF THE PHILIPPINES 
First Regular Session 
S.B. No. 
181 5 
Introduced by Senator JUAN PONCE ENFULE 
EXPLANATORY NOTE 
Admittedly, excise taxation of certain products can be put to use to accomplish 
diverse goals in national policy. For instance, it can be used simply under the taxing 
power of the State to raise revenue. It can also be employed under the police power of 
the State to deter or discourage the consumption of products deemed inimical to the 
health of the people. Or it can be employed for both reasons: to provide revenue for the 
government and to protect the health of the community. 
The last one is the objective of the proposed bill. It is intended to raise revenue 
for the government, to deter or discourage the consumption of tobacco products in 
general, and in particular, to protect passive smokers from the ill effects of negative 
environment arising from smoking machine packed cigarettes. 
It is no longer a secret that cigarette smoking is hazardous to health. In fact, it is 
now a major cause of lung cancer in our modern day. There are varied estimates of the 
number of deaths in the country arising from lung cancer. One estimate says that it is 
between fifty (50) to one hundred (100) daily. 
The Philippine Lung Center gives the estimate that 17,238 new cases will occur in 
2005. The median survival time is six (6) months. Five-year survival rate is 5.28%. 
Ten-year survival is only 2.68%. Incidence rises steeply at age 40. Of the new cases in 
2005, 13,273 will be males and 3,965 will be females. In the same year, 15,881 deaths 
are expected. 
However, according to the World Health Organization, lung cancer and other 
tobacco-related diseases kill 20,000 Filipinos yearly and leave the government poorer by 
about P46 billion in economic and medical costs annually. On the basis of this WHO 
estimate, this would mean fifty-five (55) hapless individuals would depart daily from our 
temporal world and leave their love ones forever. It is also estimated that of the number 
of deaths from smoking-related diseases, about 99% come from the C, D, and E classes 
of our society. 
Today, there are estimated 23.8 million adult smokers in the country. One percent 
(1%) of this comes from the A and B classes; 6%, from the C class; 66%, from the D 
class; and 27%, from the E class. 
In terms of age, 24% belong to ages 24 years and below; 15% belong to ages 25 
to 29 years; 25% belong to ages 30 to 39 years; and 36% belong to ages forty years and 
above. 


2 
As far as gender is concerned, 85% are males and 15% are females. 
Probably, this too is the experience of other countries. And probably, this is also 
the impelling reason why many countries enact laws that severely regulate cigarette 
smoking and impose heavy excise taxes on the consumption of the product. 
Compared to other countries, our excise taxes on machine packed cigarettes are 
among the lowest. For instance, at current exchange rate, Singapore imposes an excise 
tax equivalent to P193.20 per pack; Hongkong, P115.40 per pack; Japan, P81.20 per 
pack; Korea, P24.64 per pack; Taiwan, P19.60 per pack; Malaysia, P15.68 per pack; 
Germany, P409.7 per pack; United Kingdom, P365.28 per pack; France, P249.21 per 
pack; Denmark, P226.9 per pack; Italy, P154.30 per pack; and Spain, P74.82 per pack. 
Under Paragraph (C) of Section 145 of the National Internal Revenue Code, 
machine packed cigarettes are classified into "Premium", "High", "Medium", and "Low". 
The excise tax rates differ widely for each of these four classifications. 
The "Premium" cigarettes are taxed at P13.44 per pack under Subparagraph (1) of 
Paragraph (C), Section 145 of the National Internal Revenue Code. The only brand under 
this category is LUCKY STRIKE. In 2003, it had less than 0.1% share of the market. 
The total volume of sales of machine packed cigarettes for that year was 87,173,600,000 
sticks, or 4,358,700,000 packs. The tax payment of the "Premium" class of cigarettes for 
2003 was negligible. 
The "High" cigarettes are taxed at P8.96 per pack under Subparagraph (2) of 
Paragraph (C), Section 145 of the National Internal Revenue Code. The brands under this 
class are: HOPE M 100, PM M 100, PM LTS M 100/PM 100s FTB, MB KS, MB 
LIGHTS FIL K, MB LIGHTS MK, MB FTB lOs, MB LIGHTS FTB 20s, MB KS FTB 
20s, MB Menthols Lights FTB, MB FF MK, PM KS, BOWLING GREEN M 100, 
BOWLING GREEN PREM M, and JET SPECIAL FIL K. 
The "High" class of cigarettes had 30.5% share of the market in 2003. The 
aggregate sale from this class in 2003 was 26,587,948,000 sticks, or 1,329,397,000 packs, 
and it contributed 60.6% or P11,935,170,000.00, out of the entire revenue of 
P19,680,478,179.40 of the government for that year from machine packed cigarettes. 
The "Medium" cigarettes are taxed at P5.60 per pack under Subparagraph (3) of 
Paragraph (C), Section 145 of the National Internal Revenue Code. The brands under 
this class are: MONTREAL FIL K, CANNON M KS, CAMEL FIL K, CAMEL FIL 
BOX 20s, CAMEL LTS BOX 20s, CHAMPION INTL M 100, HOPE MK, MARK M 
100, MORE INTL FIL K, MORE M 100, MARK PREM MK, CANNON M 100, 
FORBES FIL K, L & M KS SP, CASINO ROYALE FIL K, CASINO ROYALE M 100, 
CASINO ROYALE MK, WINSTON FIL K, and WINSTON LIGHTS FIL K. 
The "Medium" class of cigarettes had 21.5% share of the market in 2003. The 
aggregate sale from this class in 2003 was 18,742,324,000 sticks, or 937,116,200 packs, 
and it contributed 27.3% or P5,376,735,000,000.00, to the entire revenue of the 
government for that year from machine packed cigarettes. 
The "Low" cigarettes are taxed at P1.12 per pack under Subparagraph (4) of 
Paragraph (C), Section 145 o€ the National Internal Revenue Code. The brands under this 
class are: BOSS SK M 100, BOSS FK, CHAMPION MK, CHAMPION MK LIGHT, 
EVERGREEN M 100, FORTUNE INTL MK, FORTUNE INTL FK, JACKPOT M 100, 
LIBERTY M 100, PEAK M 100, PLAZA M 100, WEST POINT FIL K, WINTER M 
100, MEMPHIS FK, MEMPHIS lOOs, ASPEN M 100/Golden Key M100, ASPEN M 
KS, ASPEN FIL WGolden Key FK, ASTRO M 100, ASTRO MK, ASTRO FK, 


3 
BOWLING GOLD M, BOWLING GOLD MK BOX, BOWLING GOLD FK BOX, LAS 
VEGAS M 100, MILLER INTL M, MILLER LIGHTS M 100, MILLER INTL MK, 
MORGAN INTL M 100, STORK INTL CLASSIC FK, STORK LIGHTS M 100, 
STORK LIIGHTS MK, STORK SPECIAL LTS M, STORK INTL M, STORK INTL 
MK, STORK INTL FIL K, STORK M 100, STORK MK, UNION AMERICAN 
BLEND, UNION M 100, CHASE PREM INTL, MILLER FIL K, MORGAN SELECT 
M, BLUE SEAL M 100, GALL0 FIL K, KINGS 100, KINGS, LA RED FIL K, LA 
LIGHTS, LA SPECIAL M 100, MARVEL M 100, MARVEL RED FIL K, MIGHTY 
KS, RIGHTIMIGHTY M 100, SUPER CIG 100,68 KS, 68 M 100, ASIA BOSTON FIL 
K, ASIA BOSTON MK, ASIA BOSTON M 100, CANADIAN CLUB M100, 
MEDALLION M100, CHARTER LIGHTS FIL K, DALLAS M 100, FIGHTER MK, 
CHUNGHWA/SHUANGXI/YU"AN, GREAT WALL INTL M 100, GOODWILL 
FK, GOOD CHAMPION LTS K, NAVY CLUB FIL K, PENTAGON M 100, SOCIAL 
CLUB FIL K, SOCIAL CLUB M 100, SOCIAL CLUB MK, SOMEONE MENTHOL 
loo's, SPOTLIGHT MENTHOL loo's, TRIPLE A FREEDOM M 100, TRIPLE A 
FREEDOM MK, VALENTINO M 100, GUESS FK, GLORY FK, MANHATTAN FIL 
K, SENATE FIL K, VILLA ESCUDERO MK, VISION 2000/ESCUDERO FK, VISION 
2000 M 100, LIGHT HOUSE FIL K, STRIKE FIL K, RAINBOW FIL K, SMART FK, 
SMART M100. and CHAMPION M 100. 
The "Low" class of cigarettes had 48% share ofthe market in 2003. The aggregate 
sale from this class in 2003 was 41,843,328,000 sticks, or 2,092,166,400 packs. Andyet, 
it contributedonly 12. J%, or P2,383,095,000.00, to the entire revenue of the government 
for that year from machine packed cigarettes. 
The inefficiencies in the structure of our excise taxes on tobacco products -- 
especially excise taxes on machine packed cigarettes -- and in their administration have 
made these taxes very ineffective, almost useless, tools of national policy. They have 
failed to accomplish their sumptuary aim simply because the rates of excise taxes are 
very mild. 
It is, therefore, no wonder that our excise taxes on machine packed cigarettes do 
not and cannot provide sufficient deterrence or discouragement to individuals to smoke 
cigarettes, whether these are old or new smokers, and especially to the members of our 
younger population -- the teenagers. Nor do these excise taxes contribute sufficient 
revenue to the government to compensate for the immense social cost that cigarette 
smoking inflicts on society. 
It is worth repeating here what the World Health 
Organization said that the Philippines incurs annually some P46 billion in economic and 
medical costs because of smoking-related diseases. 
In 2003, the tax revenue from tobacco products was but equal to 0.46 percent of 
GDP. This ratio is almost equal to the tax-to-GDP ratio twenty years ago. 
The extremely poor perforinance of excise taxes on tobacco products is 
attributable to the complex structure of these taxes. Using price as basis to tax sin 
products is not effective and advantageous to the government. It benefits the producers, 
importers, and other major players extremely, but not the government. 
This is especially true for those affecting machine packed cigarettes. The 
complexity of the structure of the excise tax on machine packed cigarettes attracts 
manipulations and misdeclarations of prices and productions. It also encourages shifting 
from one price classification to another, whenever it is advantageous, taxwise, to the 
producers, importers, or other players. 
These manipulations, misdeclarations, and shifting from one classification to 
another for machine packed cigarettes are manifested in the erratic annual revenue of the 
government in relation to sales during the years from 1996 to 2003. 


4 
In 1996, the government collected P14.936 billion out of an aggregate sales of 
77.035 billion sticks; in 1997, P16.020 billion out of an aggregate sales of 67.815 billion 
sticks; in 1998, P16.743 billion out of an aggregate sales of 70.748 billion sticks; in 1999, 
P16.504 billion out of an aggregate sales of 71.483 billion sticks; in 2000, P17.407 billion 
out of an aggregate sales of 70.866 billion sticks; in 2001, P19.420 billion out of an 
aggregate sales of 78.963 billion sticks; in 2002, P20.064 billion out of an aggregate 
sales of 83.828 billion sticks; and in 2003, P19.695 billion out of an aggregate sales of 
88.266 billion sticks. These figures include both machine and hand packed cigarettes. 
The above facts and figures indubitably show the distorted nature of the present 
structure of the excise tax on machine packed cigarettes. Worse, the present tax structure 
provides no mechanism at all that will allow the government to adjust the tax rates to 
make them fairer and more effective. And there is no way under the current system to 
make them correspond to changes in price levels either. The present structure of the 
excise tax on machine packed cigarettes has immensely benefited the "Low" class of 
machine packed cigarettes to the detriment of the government and society. 
Ad valorem taxation of tobacco products failed in the past. It will fail again, if 
Congress will be incautious enough to adopt it once more as a mode to tax machine 
packed cigarettes. 
In 1997, when the shift to Specific tax system was proposed, it was shown with 
clear proofs that the government was losing a very large portion of its revenue from 
machine packed cigarettes under the Ad valorem system because of elaborate tax 
avoidance scheme concocted by one of the main producers. It was established that the Ad 
valorem model allowed price manipulations and sham transactions. It was also shown 
that the Ad valorem system attracted a shift toward low priced and low taxed products. 
And it was furthermore established that the Ad valorem system was difficult to 
administer. 
But more than its failure as a reliable method to raise revenue, it was also 
demonstrated in the investigation conducted by the Ways and Means Committee of the 
Senate that ad valorem taxation lends itself to massive corruption, tax avoidance, if not 
downright tax evasion. The records of the Senate hearings clearly and loudly attest to 
this fact. 
Hence, the bill being presented aims to simplify the structure and administration 
of the tax on machine packed cigarettes through the following provisions: 
1. 
The bill proposes to rationalize and adjust the presently 
distorted structure of the rates, especially the multi-tiered rates, of the 
excise tax on machine packed cigarettes so that ultimately the said excise 
tax will have a single rate. 
The four-tiered rates we now have promote distortions in prices 
and productions. 
They promote production of low-priced cigarettes, 
which account for 48 percent share of the market in 2003, from only 
28.8% in 1996. 
The large gaps and disparities in the excise tax rates for the various 
classes of machine packed cigarettes attract creative tax avoidance, if not 
outright tax evasion practices. And they do not promote effective tax 
administration and compliance. 


5 
The adoption of a uniform tax rate will bring forth the sumptuary 
Smoking, regardless of brands and prices of 
purpose of taxation. 
cigarettes, should be deterred or discouraged. 
2. 
The bill also proposes to adopt a mechauism that will 
provide an automatic adjustment of tax rates relative to inflation every two 
years starting in 2013. 
Section 109(z) of the National Internal Revenue Code provides for 
the use of the Consumer Price Index (CPI) as published by the National 
Statistics Office in the adjustment o f  sales of small traders to its current 
value. The indexation provision of this bill uses the CPI to adjust the tax 
rates to eilhance buoyancy of revenues in relation to price changes. Some 
governments, such as New Zealand, Australia, and the United Kingdom, 
use indexation as an effective tool to sustain a buoyant tax collection 
through time. 
3. 
It likewise proposes to protect the government from 
frontloading of cigarette production or importation in anticipation of 
increases in tax rate. It was estimated that government lost more than one 
billion pesos in 1997 due to this practice. 
The proposal is estimated to generate P18.04 billion in additional revenues in 
2005, P3.3 billion yearly in 2006,2007, and 2008, P4.9 billion in 2009 and P6.5 billion in 
2010. 
Increases in tax rates for cigarettes presently classified as "High", "Medium", and 
"Low" will be phased in six years: from P9.50 per pack in 2005 to P13.50 per pack in 
2010 for "High" and from P6.00 per pack in 2005 to P13.50 per pack in 2010 for 
"Medium" and "Low". The cigarettes classified as "Premium" will pay an excise tax of 
P13.50 beginning on January 1,2005. 
There are four other brands, which do not come under the classification of either 
"Premium", "High", "Medium", or "Low". These are: SALEM M 100, SALEM MK, 
SALEM MK BOX ~O'S, 
and SALEM MK LTS BOX 20's. Currently, these are subject to 
a uniform excise tax rate of P6.96 per pack. It is proposed that these will all be placed 
under a uniform rate of P7.50 per pack effective on January 1, 2005, and they shall 
continue to be under that uniform rate until the end of 2006. 
After 2006, the brands SALEM M 100, SALEM MK, SALEM MK BOX 20's and 
SALEM MK LTS BOX 20's will all be placed under the rates applicable to the brands 
presently classified as "Medium" and "Low," respectively, in Subparagraphs (3) and (4) 
of Paragraph (C), Section 145 of the National Internal Revenue Code for the years 2007, 
2008,2009, and 2010. 
As a revenue safeguard, the bill provides that machine packed cigarettes that are 
currently subject, if there are any, to a higher tax rate than the proposed rates must 
continue to be subject to the higher rate. 
This bill will promote revenue-productivity, enhanced tax administration, 
simplicity in tax structure, fulfill the sumptuary purpose of taxation, and in addition, level 
the playing field for the cigarette industry. 


6 
The bill will also redound to the benefit of the tobacco farmers, especially in the 
North because their share, by virtue of Republic Act No. 7171, from the resulting higher 
tax revenue will greatly increase. 
In view of the foregoing, approval of this bill is earnestly sought 


THIRTEENTH CONGRESS OF THE REPUBLIC ) 
OF THE PHILIPPINES 
1 
First Regular Session 
1 
S E N A T E  
S.B. No. 
1835 
Introduced by Senator JUAN PONCE ENRILE 
AN ACT 
FURTHER AMENDING SECTION 145 OF THE NATIONAL INTERNAL 
REVENUE CODE OF 1997 
Be it enacted by the Senate and House of Representatives of the Philippines in Congress 
assembled: 
SECTION 1, Section 145 of the National Internal Revenue Code of 1997 is 
hereby FURTHER amended to read as follows: 
"SEC. 145. Cigars and Cigarettes. - 
(A) Cigars. [There] BEGINNING ON JANUARY 1, 2005, 
THERE shall be levied, assessed and collected on cigars a tax of [One 
peso (@l.OO)] ONE PESO AND FIFTY CENTAVOS (P1.50) per 
cigar[;]. 
THE TAX RATE SPECIFIED IN PARAGRAPH (A) 
HEREOF FOR THE CALENDAR YEAR 2005 SHALL BE 
ADJUSTED EFFECTIVE ON JANUARY 1,2007, BY USING FOR 
THAT PURPOSE THE AVERAGE OF THE INCREASES IN THE 
CONSUMER PRICE INDICES OF THE TWO IMMEDIATELY 
PRECEDING CALENDAR YEARS; AND EVERY TWO YEARS 
THEREAFTER, THE LAST PRECEDING ADJUSTED RATE 
SHALL BE ADJUSTED BY USING FOR THAT PURPOSE THE 
AVERAGE OF THE INCREASES IN THE CONSUMER PRICE 
INDICES 
OF 
THE 
TWO 
IMMEDIATELY 
PRECEDING 
CALENDAR YEARS FOLLOWING THE LAST ADJUSTMENT. 
(B) 
Cigarettes Packed by Hand. 
[There] BEGINNING ON 
JANUARY 1, 2005, THERE shall be levied, assessed and collected on 
cigarettes packed by hand a tax of [Forty centavos (G0.40)] SIXTY 
CENTAVOS (P0.60) per pack[;]. 
THE TAX RATE SPECIFIED IN PARAGRAPH (E) 
HEREOF FOR THE CALENDAR YEAR 2005 SHALL BE 
ADJUSTED EFFECTIVE ON JANUARY 1,2007, BY USING FOR 
THAT PURPOSE THE AVERAGE OF THE INCREASES IN THE 


2 
CONSUMER PRICE INDICES OF THE TWO IMMEDIATELY 
PRECEDING CALENDAR YEARS; AND EVERY TWO YEARS 
THEREAFTER, THE LAST PRECEDING ADJUSTED RATE 
SHALL BE ADJUSTED BY USING FOR THAT PURPOSE THE 
AVERAGE OF THE INCREASES IN THE CONSUMER PRICE 
INDICES 
OF 
THE 
TWO 
IMMEDIATELY 
PRECEDING 
CALENDAR YEARS FOLLOWING THE LAST ADJUSTMENT, 
(C) Cigarettes Packed by Machine. [There] BEGINNING ON 
JANUARY 1, 2005, THERE shall be levied, assessed and collected on 
cigarettes packed by machine a tax at the rates prescribed below: 
[(l ) If the net retail price (excluding the excise tax and the value- 
added tax) is above Ten pesos (8.10.00) per pack, the tax shall be Twelve 
pesos (H2.00) per pack;] 
[(Z) If the net retail price (excluding the excise tax and the value- 
added tax) exceeds Six pesos and fifty centavos (8.6.50) but does not 
exceed Ten pesos (P10.00) per pack, the tax shall be Eight pesos (P8.00) 
per pack;] 
[(3) If the net retail price (excluding the excise tax and the value- 
added tax) is Five pesos (8.5.00) but does not exceed Six pesos and fifty 
centavos (Q6.50) per pack, the tax shall be Five pesos (P5.00) per pack;] 
[(4) If the net retail price (excluding the excise tax and the value- 
added tax) is below Five pesos (R5.00) per pack, the tax shall be One peso 
(P 1 .OO) per pack;] 
[Variants of existing brands of cigarettes which are introduced in 
the domestic market after the effectivity of R.A. No. 8420 shall be taxed 
under the highest classification of any variant of that brand.] 
[The excise tax from any brand of cigarettes within the next three 
(3) years from the effectivity of R.A. 8240 shall not be lower than the tax 
which is due from each brand on October 1, 1996: Provided, however, 
That in cases where the excise tax rates imposed in paragraphs (I), (2), (3) 
and (4) hereinabove will result in an increase in excise tax of more than 
seventy percent (70%), for a brand of cigarette, the increase shall take 
effect in two tranches: fifty percent (50%) of the increase shall be 
effective in 1997 and one hundred percent (100%) of the increase shall be 
effective in 1998.1 
[Duly registered or existing brands of cigarettes or new brands 
thereof packed by machine shall only be packed in twenties.] 
[The rates of excise tax on cigars and cigarettes under paragraphs 
(l), (2), ( 3 )  and (4) hereof, shall be increased by twelve percent (12%) on 
1,2000.] 
[New brands shall be classified according to their current retail 
price.] 
[For the above purposes, “net retail price” shall mean the price at 
which the cigarette is sold on retail in twenty (20) major supermarkets in 
Metro Manila (for brands of cigarettes marketed nationally), excluding the 
amount intended to cover the applicable excise tax and the value-added 


3 
tax. For brands which are marketed only outside Metro Manila, the "net 
retail price" shall mean the price at which the cigarette is sold in 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 on its average 
retail price as of October 1, 1996 as set forth in Annex D shall remain in 
force until revised by Congress.] 
["Variant ofa brand! shall refer to a brand on which a modifier is 
prefixed and/or suffixed to the root name of the brand and/or a different 
brand which carries the same logo or design of the existing brand.] 
(1) FOR THOSE FALLING UNDER SUB-PARAGRAPH (1) 
INTERNAL REVENUE CODE AS OF DECEMBER 31, 2004 -- 
OF PARAGRAPH (C) OF SECTION 145 OF THE NATIONAL 
EFFECTIVE JANUARY 1, 2005, THIRTEEN PESOS AND FIFTY 
CENTAVOS (P13.50) PER PACK. THIS RATE SHALL REMAIN 
UNTIL ADJUSTED IN THE YEAR 2013, IN ACCORDANCE WITH 
THIS ACT. 
(2) FOR THOSE FALLING UNDER SUB-PARAGRAPH (2), 
PARAGRAPH (C) OF SECTION 145 OF THE NATIONAL 
INTERNAL REVENUE CODE AS OF DECEMBER 31,2004- 
EFFECTIVE ON JANUARY 1, ZOOS, NINE PESOS AND 
FIFTY CENTAVOS P9.50) PER PACK; 
EFFECTIVE ON JANUARY 1, 2006, TEN PESOS (P10.00) 
PER PACK; 
EFFECTIVE ON JANUARY 1, 2007, TEN PESOS AND 
FIFTY CENTAVOS (P10.50) PER PACK; 
EFFECTIVE ON JANUARY 1, 2008, ELEVEN PESOS 
(P11.00) PER PACK, 
EFFECTIVE ON JANUARY 1, 2009, TWELVE PESOS 
(P12.00) PER PACK; AND 
EFFECTIVE ON JANUARY 1, 2010, THIRTEEN PESOS 
AND FIFTY CENTAVOS (P13.50) PER PACK. 
(3) FOR THOSE FALLING UNDER SUB-PARAGRAPHS (3) 
AND (4) OF SECTION 145 OF THE NATIONAL INTERNAL 
REVENUE CODE AS OF DECEMBER 31,2004-- 
EFFECTIVE ON JANUARY 1, 2005, SIX PESOS (P6.00) 
PER PACK; 
EFFECTIVE ON JANUARY 1, 2006, SEVEN PESOS AND 
FIFTY CENTAVOS (P7.50) PER PACK; 
EFFECTIVE ON JANUARY 1, 2007, NINE PESOS (P9.00) 
PER PACK; 


4 
EFFECTIVE ON JANUARY 1, 2008, TEN PESOS AND 
FIFTY CENTAVOS (P10.50) PER PACK; 
EFFECTIVE ON JANUARY 1, 2009, TWELVE PESOS 
(P12.00) PER PACK; AND 
EFFECTIVE ON JANUARY 1, 2010, THIRTEEN PESOS 
AND FIFTY CENTAVOS (P13.50) PER PACK. 
(4) FOR SALEM 100, SALEM MK, SALEM MK BOX ~ O ' S ,  
AND SALEM LTS BOX 20's -- 
EFFECTIVE ON JANUARY 1,2005 UNTIL DECEMBER 31, 
2006, SEVEN PESOS AND FIFTY CENTAVOS (P7.50) PER PACK; 
EFFECTIVE ON JANUARY 1, 2007, NINE PESOS (P9.00) 
PER PACK, 
EFFECTIVE ON JANUARY 1, 2008, TEN PESOS AND 
FIFTY CENTAVOS (P10.50) PER PACK; 
EFFECTIVE ON JANUARY 1, 2009, TWELVE PESOS 
(P12.00) PER PACK; AND 
EFFECTIVE ON JANUARY 1, 2010, THIRTEEN PESOS 
AND FIFTY CENTAVOS (P13.50) PER PACK. 
BRANDS OF CIGARETTES PACKED BY MACHINE, 
INCLUDING THEIR VARIANTS, SHALL CONTINUE TO PAY 
THE CORRESPONDING EXCISE TAX DUE ON EACH PACK OF 
CIGARETTES UNDER THOSE BRANDS ON DECEMBER 31, 
2004, IF SUCH EXCISE TAX IS HIGHER THAN THE EXCISE 
TAX FOR EACH PACK OF CIGARETTES OF SUCH BRANDS 
PARAGRAPHS (l), (2), (3), AND (4) OF PARAGRAPH (C) 
HEREOF. 
UNDER 
THE 
NEW 
RATES 
PROVIDED 
UNDER 
SUB- 
ANY NEW BRAND INTRODUCED INTO THE MARKET 
AFTER THE EFFECTIVITY OF THIS ACT SHALL BE SUBJECT 
PARAGRAPH (C) HEREOF. 
TO THE HIGHEST TAX RATE UNDER SUB-PARAGRAPH (1) OF 
FOR EASY VERIFICATION AND IDENTIFICATION, ALL 
CIGARETTES PACKED BY MACHINES BEING MARKETED OR 
TO BE MARKETED IN THE PHILIPPINES, MUST CARRY 
EITHER AN EXISTING BRAND, A REGISTERED BRAND, OR A 
NEW BRAND, AND SHALL ONLY BE PACKED IN TWENTY 
STICKS OF CIGARETTES PER PACK. 
THE TAX RATE SPECIFIED IN SUB-PARAGRAPHS (l), 
(2), (3), AND (4) OF PARAGRAPH (C) HEREOF FOR THE 
CALENDAR YEAR 2010 SHALL BE ADJUSTED EFFECTIVE ON 
JANUARY 1, 2013, BY USING FOR THAT PURPOSE THE 
AVERAGE OF THE INCREASES IN THE CONSUMER PRICE 
INDICES 
OF 
THE 
TWO 
IMMEDIATELY 
PRECEDING 
CALENDAR YEARS; AND EVERY TWO YEARS THEREAFTER, 
THE LAST PRECEDING ADJUSTED RATE 
SHALL BE 


5 
ADJUSTED BY USING FOR THAT PURPOSE THE AVERAGE OF 
THE INCREASES IN THE CONSUMER PRICE INDICES OF THE 
TWO 
IMMEDIATELY 
PRECEDING 
CALENDAR 
YEARS 
FOLLOWING THE LAST ADJUSTMENT. 
IN ALL CASES UNDER PARAGRAPHS (A), (B), AND (C) 
HEREOF, THE ADJUSTMENTS OF THE TAX RATES AS 
PROVIDED THEREIN SHALL BE DONE BY THE SECRETARY 
OF FINANCE, UPON THE RECOMMENDATION OF THE 
COMMISSIONER OF INTERNAL REVENUE AND THE HEAD 
OF THE NATIONAL STATISTICS OFFICE, AND EVERYTIME 
AN ADJUSTMENT OF ANY OF THE RATES IS MADE, THE 
SECRETARY OF FINANCE SHALL FORTHWITH ANNOUNCE 
THE 
NEWLY 
ADJUSTED 
TAX 
RATE 
THROUGH 
APPROPRIATE REVENUE REGULATIONS. 
IN THE CASE OF MACHINE PACKED CIGARETTES, 
FROM THE APPROVAL OF THIS ACT UNTIL DECEMBER 31, 
2010, NO MANUFACTURER, IMPORTER, OR WHOLESALER 
OF MACHINE PACKED CIGARETTES SHALL INCREASE ITS 
MONTHLY PRODUCTION, IMPORTATION, OR INVENTORY 
FROM THE FIRST OF JULY UNTIL DECEMBER THIRTY FIRST 
OF EVERY YEAR BY A QUANTITY THAT EXCEEDS THE 
AVERAGE MONTHLY GROWTH RATE OF ITS PRODUCTION, 
IMPORTATION, OR INVENTORY IN THE LAST TWO YEARS 
PRECEDING THE CURRENT YEAR. 
THE SAME RULE SHALL APPLY FOR THE LAST YEAR 
PRECEDING AN 
ADJUSTMENT OF THE 
TAX RATE 
PROVIDED FOR UNDER PARAGRAPHS (A), (B), AND (C) 
HEREOF. 
OF THE PERIODIC TWO-YEAR INTERVAL IMMEDIATELY 
ANY TOBACCO PRODUCTS (ESPECIALLY MACHINE 
PACKED CIGARETTES) PRODUCED, IMPORTED, OR HELD IN 
INVENTORY IN EXCESS OF THE SAID AVERAGE MONTHLY 
GROWTH RATE OF PRODUCTION, IMPORTATION, OR 
INVENTORY OF A MANUFACTURER, IMPORTER, 
OR 
WHOLESALER SHALL BE SUBJECT TO THE HIGHER TAX 
RATE OF THE IMMEDIATELY SUCCEEDING YEAR. 
THE 
COMMISSIONER OF INTERNAL REVENUE 
SHALL TAKE, NOT 
LATER THAN 
THREE (3) DAYS 
IMMEDIATELY FOLLOWING THE APPROVAL OF THIS ACT, 
AN INVENTORY OF ALL TOBACCO PRODUCTS (ESPECIALLY 
MACHINE PACKED CIGARETTES) PRODUCED, IMPORTED, 
OR 
HELD 
BY 
MANUFACTURERS, 
IMPORTERS, 
OR 
WHOLESALERS. 
SUCH INVENTORY TAKING SHALL BE 
DONE REGULARLY EVERY MONTH THEREAFTER, USING 
FOR THAT PURPOSE ANY EFFECTIVE PROCESS, SUCH AS 
STAMPING 
MACHINES, TAMPER 
RESISTANT 
STAMPS 
ATTACHED TO EVERY PACK OF MACHINE PACKED 
CIGARETTES TO INDICATE PAYMENT OF TAX DUE, OR ANY 
SIMILAR DEVICE THAT WILL ENABLE THE COMMISSIONER 
OFINTERNALREVENUETOACCOUNTFORALLTOBACCO 
PRODUCTS (ESPECIALLY MACHINE PACKED CIGARETTES) 
PRODUCED, IMPORTED, OR HELD BY MANUFACTURERS, 


6 
IMPORTERS, OR WHOLESALERS DURING A GIVEN PERIOD 
AND TO ASSURE THE PAYMENT OF ALL EXCISE TAXES DUE 
THEREON. 
Manufacturers, [and] importers, AND WHOLESALERS of 
[cigars and] cigarettes AND CIGARS, shall within thirty (30) days from 
the effectivity of [Republic Act No. 82401 THIS ACT and within the first 
five (5) days of every month thereafter submit to the Commissioner OF 
INTERNAL REVENUE a sworn statement of the QUANTITY OR 
volume of sales [for each particular brand] of [cigars and /or] cigarettes 
AND/OR CIGARS sold at his establishment for the three-month period 
immediately preceding. 
Any manufacturer, [or] importer, OR WHOLESALER 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, OR 
WHOLESALER of [cigars or] cigarettes OR CIGARS. 
Any PERSON (WHETHER AN INDIVIDUAL, corporation, 
association, or partnership) liable for any of the acts or omissions in 
violation o f  this Section shall be fined treble the AGGREGATE 
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." 
SECTION 2. FIVE PERCENT (5%) OF THE INCREMENTAL REVENUE 
GENERATED UNDER THIS ACT OVER THE REVENUE OF THE 
GOVERNMENT 
FROM 
MACHINE PACKED 
CIGARETTES IN THE 
CALENDAR YEAR 2004 SHALL BE ALLOCATED EQUALLY TO THE 
PHILIPPINE LUNG CENTER, THE PHILIPPINE HEART CENTER, AND THE 
PHILIPPINE KIDNEY CENTER, FOR THEIR MODERNIZATION, AND 
ANOTHER FIVE PERCENT (5%) TO BE USED TO ASSIST AND MODERNIZE 
ALL REGIONAL HOSPITALS THROUGHOUT THE COUNTRY. 
SECTION 3. All laws, acts, executive orders, rules and regulations inconsistent 
with the provisions of this Act are hereby repealed or modified accordingly. 
SECTION 4. This Act shall take effect fifteen (15) days following its publication 
in at least two (2) newspapers of general circulation. 
APPROVED,