FOURTEENTH CONGRESS OF THE 
) 
REPUBLIC OF PHILIPPINES 
) 
Second Regular Session 
) 
I 
S E N  
S. No. 
Introduced by Senator Lacson 
EXPLANATORY NOTE 
Paragraph 1, Section 28, Article VI of the 1987 Constitution provides that: 
"The rule of taxation shall be uniform and equitable. The Congress shall evolve a 
progressive system of taxation." 
Four (4) years after the passage of RA No. 9334, otherwise known as the 
Sin Tax Reform of 2005, it was found out that the existing law contains several 
structural flaws that have rendered the same inoperative. In particular, the excise 
taxes on tobacco products failed to achieve its twin goals: (1) to generate the 
expected revenues and (2) to discourage smoking. 
The current cigarette tax system is characterized by multiple rates, 
discrimination against brands that were introduced after December 31,2003 and 
non-indexation to track price movements. 
The multi-tiered rates create 
opportunities for discretion in classification of cigarette brands as well as drive 
smokers to consume lower priced, and therefore lower taxed, brands of 
cigarettes. The distinction between old and new brands creates an uneven 
playing field among cigarette products. The absence of a transparent benchmark 
by which the excise tax rates is adjusted to track inflation resulted in lower-than- 
projected revenue collection. 
This bill intends to address these problems so that the government can 
achieve its twin purpose of revenue generation and control tobacco consumption 
by imposing a unitary specific tax rate for tobacco products. The unification of the 
cigarette tax rates will be undertaken in two phases. The two lowest 
classifications will be taxed at a lower rate than the highest two classes in the 
first year of implementation. In succeeding years, the specific tax rate shall be a 
singular rate that will be indexed to the tobacco price index. 
The proposed excise tax system under this bill will be simple, effective and 
efficient. It will reduce administrative complications associated with the current 
multi-rate structure, provide a market conducive to pure competition, raise 
revenues and discourage tobacco consumption, 
Finally, the proposed measure would address uniformity and equity 
In view of the foregoing, approval of this bill is earnestly requested. 
issues. 


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FOURTEENTH CONGRESS OF THE 
) 
1%. 
REPUBLIC OF THE PHILIPPINES 
1 
Second Regular Session 
) 
S E N A T E  
-- 
Introduced by Senator Lacson 
AN ACT 
RESTRUCTURING THE EXCISE TAX ON TOBACCO PRODUCTS AMENDING 
FOR THE PURPOSE PERTINENT SECTIONS OF THE NATIONAL INTERNAL 
REVENUE CODE, AS AMENDED 
Be it enacted by the Senate and House of Representatives of the Philippines in 
Congress assembled: 
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SECTION I. 
Section 144 of the National Internal Revenue Code of 1997, 
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follows: 
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as amended by Republic Act No. 9334, is hereby further amended to read as 
"SEC. 144. Tobacco Products. - There shall be collected a tax of 
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[One peso (PI.OO)] TWO PESOS AND FIFTY CENTAVOS (P2.50) on 
each kilogram of the following products of tobacco: 
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"(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 machine or 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 


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stripping of whole leaf tobacco shall be transferred, disposed of, or 
otherwise sold, without any prepayment of the excise tax herein provided 
for, if the same are to be exported or to be used 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 
(PO.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 
I, 
2011.1 
"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 


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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 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 145 of the National Internal Revenue Code , 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 
P200.00 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).] 


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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 TOBACCO PRODUCTS, AS PUBLISHED BY THE 
NATIONAL STATISTICS OFFICE (NSO).” 
”(6) 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. 
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 TOBACCO PRODUCTS, AS PUBLISHED BY THE 
NATIONAL STATISTICS OFFICE (NSO).” 
[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.] 
“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 1,2010 - 


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"(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; 
"(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, 2011, 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 PUBLISHED 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, 
2010." 
["(I) 
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 


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"Effective on January I, 
2011,. Two pesos and seventy-two 
centavos (P2.72) per pack. 
"(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 on January 1, 201 1, 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 (PI 1.43) per pack; and 
"Effective on January 1,201 1, Twelve pesos (P12.00) per pack. 
"(4) If the net retail price (excluding the excise tax and the value- 
added tax) is above 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 and six centavos 
(P26.06 per pack; 


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“Effective on January 1, 2009, Twenty-seven pesos and sixteen 
centavos (P27.16) per pack; and 
“Effective on January 1, 2011, Twenty-eight pesos and thirty 
centavos (P28.30) 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, howevec 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 andlor 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 
purposes, 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. 82401 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 


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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 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 by the Bureau of Internal Revenue, shall mean the price at which 
the cigarette is sold on retail in at least twenty (20) major supermarkets in 
Metro Manila (for brands of cigarettes marketed nationally), excluding the 
amount intended to cover the applicable excise tax and value-added 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 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 or after October 1, 1996, and 


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which continue to be commercially produced and marketed after the 
effectively of this Act, shall remain in force until revised by Congress.] 
"Manufacturers and importers of cigars and cigarettes 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 cigars and/or 
cigarettes sold at his establishment for the three-month period 
immediately preceding. 
"Any manufacturer or importer who, in violation of this Section, 
knowingly misdeclares or misinterprets in his or its sworn statement herein 
required any pertinent data or information shall be penalized by 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 
aggregate 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. I' 
SEC. 3. Implementing Rules and Regulations. - The Secretary of 
Finance shall, upon the recommendation of the Commissioner of Internal 
Revenue, promulgate the necessary rules and regulations for the effective 
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implementation of this Act. 


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SEC. 5. Effectivity. - This Act shall take effect fifteen (15) days after its 
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publication in the Official Gazette or in any two newspapers of general 
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circulation, whichever comes earlier. 
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Approved, 
SEC. 4. Repealing Clause. - All laws, decrees, executive orders, rules 
and regulations or parts thereof which are contrary to or inconsistent with this Act 
are hereby repealed, amended or modified accordingly.