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Republic of the Philippines
HOUSE OF REPRESENTATIVE:
Quezon City

Seventeenth Congress
First Regular Session

House BiLLNo,_ 4575

Introduced by REP. JOEY SARTE SALCEDA.

AN ACT RESTRUCTURING THE EXCISE TAX ON TOBACCO PRODUCTS AND
AMENDING FOR THE PURPOSE PERTINENT SECTIONS OF THE NATIONAL
INTERNAL REVENUE CODE, AS AMENDED.

EXPLANATORY NOTE

With the goals of (1) curbing smoking and alcohol drinking, and (2) raising much-needed funds
for government programs, the Republic Act 10351 or the Sin Tax Reform Act of 2012 (Sin Tax
Law) was passed in December 2012. It has been significantly reaping benet::s for the Philippines
since its passage. In just three years, the law has already performed beyond expectations and
resulted in the following:

Significant drop in smoking prevalence rate that persisted above 30% (or 31 percent in
2008) before the implementation of the 2012 sin tax law to 25% in 2013 and to 23% in
2015, especially among the price-sensitive populations ~ the poor the rural folk, the very
young, and the elderly.

Substantial additional revenues for the government, facilitating an unprecedented
n the national budget for health, Excise tax revenues and the national budget for
health grew from PhPS7 billion in 2012 to PhP142 billion in 2015%, and from PhPS3
billion in 2013 to PhP123 billion in 2016°, respectively.

t 1998, 2003, 2008, 2013, and 2015 National Nutrition Surveys of the Food and Nutrition Research Institute of the Department.
of Science and Technology as presented by Dr, Antonio Miguel Dans

Department of Finance

General Appropriations Act, Fiscal Years 2013, 2014, 2015, and 2016


+ Significant increase in the number of the most vulnerable Filipinos — the poor and the
elderly, whose health insurance coverage is subsidized by the national government, from
21 million members and dependents in 2013 to 52 million members and dependents in
2015 (Philippine Health Insurance Corporation, 2013; Philippine Health Insurance
Corporation, 2014; Philippine Health Insurance Corporation, 2015).
These gains have clearly proven that increasing excise taxes is both a health and a revenue
‘measure. Indeed, the Sin ‘Tax Law has significantly curbed consumption of tobacco and aleohol
and, at the same time, generated much needed revenues to finance public services, particularly,
health care,

In addition, the increase in total incremental revenue has led to an increase in the earmarking for
tobacco farmers and tobacco-growing areas,

‘The results from the Sin ‘Tax Law are very encouraging, and the lessons show that further gains
for health and revenue by raising taxes can be obtained, ‘The list below presents opportunities to
strengthen the Philippine Sin Tax Law in order to maximize its positive impact on the health of
Filipinos:

~The stipulated 4% annual increase in the tax rate beginning in 2018 does not take into
account changes in income, The 4% annual adjustment, since it is equal to the average
inflation rate for the past 10 years, will ensure that real prices of tobacco will not be
eroded over time (BangkoSentral ng Pilipinas, 2016), However, tobacco products will
become more affordable when per capita incomes increase, thereby dampening the effect
‘on health,

~ Philippine smoking prevalence is still one of the highest in the ASEAN region. Even with
the significant decline in the Philippine smoking prevalence rate from 2008 to 2015, the
Philippines still ranks third, next to Indonesia and Lao PDR, among the ASEAN
countries with the highest proportion of smoking population.

+ Tobacco consumption is highly regressive. Based on 2012 FIES, tobacco consumption
accounts for higher take of income of the lowest segments. Thus, increasing taxes on
cigarettes would discourage the price-sensitive from consuming mote of sin products.

+ Unitary taxation promotes the principle of competitive neutraility of government policy
regime especially in taxation or conversely the grant of incentives, It is not the job of the
government to choose winners or losers in any market segment except when it promotes
the national interest or the welfare of the disadvantaged, In the case of the tobacco
industry, the unit of analysis should be every cigarette regardless of brand or source as



each unit results in higher risks to health. Moreso, any pricing differentiation should be
the decision of the firm not the result of government fiscal policy, Article 12 Sec. 19
clearly states that “no unfair competition shall be allowed”,

More revenues generated by this proposal are needed to fully achieve Universal Health
Care, While there has been a historical expansion of health insurance coverage in the
recent years, many Filipinos, especially those belonging to the informal sector and who
are not yet members of PhilHealth, remain vulnerable to health shocks. Moreover, even
those who are already covered by PhilHealth still experience huge health-related out-of-
pocket expense due to the non-coverage of essential health care services, particularly
primary care and outpatient care services’. While great strides have already been
achieved in financing hospitalization and catastrophic care, resources are still lacking for
the sufficient provision of basic health services such as consultations, medicines, and
diagnostics.

Structural adjustment fund for tobacco industry. The share of tobacco producing areas
earmarked from the incremental tobacco tax revenues is increased to 20% to enable the
orderly transition of farmers and their communities fo non-tobacco economic activities.

In light of the above, the schedule of cigarette excise tax provided in this bill (unitary tax of
P40.00 in 2017, P45.00 in 2018, P50,00 in 2019, P55,00 in 2020, and P60.00 in 2021) is

expected to help the Philippine bring smoking prevalence rate down to lower than 20%, which is
the goal of the Department of Health

, and to sufficiently generate additional revenues to finance

an essential health package for all Filipinos.
The approval of this bill is earnestly sought.

“ Higher investments in the provision of primary care are associated with better health outcomes, higher patient
satisfaction, decreased healthcare spending, and more equitable and accessible healthcare (Atun, 2004),


Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City

Seventeenth Congress
First Regular Session

HOUSE BILL No. 4575,

Introduced by REP. JOBY SARTE SALCEDA.

AN ACT RESTRUCTURING THE EXCISE TAX ON TOBACCO PRODUCTS AND
AMENDI FOR TE 'URPOSE PERTINENT SECTIONS OF THE NATIONAL
INTERNAL REVENUE CODE, AS AMENDED.

Be it enacted by the Senate of the Philippines and the House of Representatives of the
Philippines in Congress assembled:

Section 1, Section 144 of the National Internal Revenue Code of 1997, as amended by
republic Act, No. 10351, is hereby further amended to read as follows:

sed and

Section 2. “(C) Cigarettes Packed by Machine. ~ There shall be levied, Fs
collected on cigarettes packed by machine a tax at the rates prescribed below:

1

TIVE ON JANUARY 1, 2018, THI
PESOS (P 40.00) PER PACK, REGARDLI
RETAIL PRICE.

TAX SHALL BE FORTY
OF BRAND OR NET

2. EFFECTIVE ON JANUARY 1, 2019, THE TAX SHALL BE FORTY-
FIVE PESOS (P 45.00) PER PACK, REGARDLESS OF BRAND OR
NET RETAIL PRICE.

TIVE ON JANUARY 1, 2020, THE TAX SHALL BE FIFTY
PESOS (P 50.00) PER PACK, REGARDLESS OF BRAND OR NET
RETAIL PRICE.

4, EFFECTIVE ON JANUARY 1, 2021, THE TAX SHALL BE FIFTY-
FIVE PESOS (P 55.00) PER PACK, REGARDLESS OF BRAND OR
NET RETAIL PRICE.

5. EFFECTIVE ON JANUARY I, 2022, THE TAX SHALL BE SIXTY
PESOS (P 60.00) PER PACK, REGARDLESS OF BRAND OR NET.
RETAIL PRICE.


PROVIDED, THAT, ON JANUARY 1, 2022 AND EVERY YEAR THEREAFTER,
THE EXCISE TAX RATE PRESCRIBED HEREIN SHALL BE ADJUSTED ANNUALLY BY
5%. THIS IS WITHOUT PREJUDICE TO THE PREROGATIVE OF CONGRESS TO
INCREASE THE INDEXED RATES IN ORDER TO MEET THE SUMPTUARY GOALS OF
THE TAX. 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,
2017

“Effective on January 1, 2013"

(1) If the net retail price (excluding the excise tax and the value-added tax) is Eleven
pesos and fifty centavos (P11.50) and below per pack, the tax shall be Twelve pesos
(P12.00) per pack; and

“(2) If the net retail price (excluding the excise tax and the value-added tax) is more
than Eleven pesos and fifty centavos (P11.50) per pack, the tax shall be Twenty-five
pesos (P25.00) per pack.

“Effective on January 1, 2014

(1) If the net retail price (excluding the excise tax and the value-added tax) is Eleven
pesos and fifty centavos (P11,50) and below per pack, the tax shall be Seventeen pesos
(P17.00) per pack; and

“(2) If the net retail price (excluding the excise tax and the value-added tax) is more
than Eleven pesos and fifty centavos (P11.50) per pack, the tax shall be Twenty-seven
pesos (P27.00) per pack.

“Bffective on January 1, 2015
“(1) If the net retail price (excluding the excise tax and the value-added tax) is Eleven
pesos and fifty centavos (P11.50) and below per pack, the tax shall be Twenty-one
pesos (P21.00) per pack; and

“(2) If the net retail price (excluding the excise tax and the value-added tax) is more
than Eleven pesos and fifty centavos (P11.50) per pack, the tax shall be Twenty-eight
pesos (P28,00) per pack.

“Effective on January 1, 2016

“(1) If the net retail price (excluding the excise tax and the value-added tax) is
pesos and fifty centavos (P11.50) and below per pack, the tax shall be Twen
pesos (P25.00) per pack; and

“(2) If the net retail price (excluding the excise tax and the value-added tax) is more
than Eleven pesos and fifty centavos (P11.50) per pack, the tax shall be Twenty-nine
pesos (P29.00) per pack.



“Effective on January 1, 2017, the tax on all cigarettes packed by machine shall be
Thirty pesos (P30.00) per pack

“The rates of tax imposed under this subsection shall be increased by four percent
(4%) every year thereafter effective on January 1, 2018, through revenue regulations
issued by the Secretary of Finance,”

“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 ofa 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 twenti

“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.

“‘Newbrand’ shall mean a brand registered after the date if the effectivity
offR.A. No. 8240] THIS ACT.

“ Suggested net retail price’ shall mean the net retail price ay 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 other regions, for those
with regional markets. At the of three (3) months from the product launch, the Bureau
of Internal Revenue shall validate the suggested retail price as defined herein and
determine the correct tax bracket to 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.


amending RA 8240 shall read as
on tobacco products under RA 8240 shall be allocated and divided among the province
producing burley and native tobacco

“Net retail price’ shall mean the price at which the distilled spirits is sold on retail
in at least five (5) major supermarkets in Metro Manila, excluding the amount intended to
cover the applicable excise tax and the value-added tax. For distilled spirits 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.
“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

cular brand of cigars and/or cigarettes sold 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 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 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 shal! 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 3. Structural Adjustment Fund for Tobacco Farmers. Sec. 8 of RA 10351
0% of the incremental revenue collected from the excise tax

accordance with the volume of tobacco leaf production.

The fund shall be exclusively utilized for programs to promote economically viable alternatives
for tobacco farmers and farmworkers such as:

(1) Programs that will provide inputs, training, and other support for tobacco
farmers who shift to production of agricultural products other than tobacco including, but
not limited to, high-value crops, spices, rice, com, sugarcane, coconut, livestock and
fisheries;

(2) Programs that will provide financial support for tobacco farmers who are
displaced or who cease to produce tobacco;

(3) Cooperative programs to assist tobacco farmers in planting alternative crops or


implementing other livelihood projects;

(4) Livelihood programs and projects that will promote, enhance, and develop the
tourism potential of tobacco-growing provinces;

(5) Infrastructure projects such as farm to market roads, schools, hospitals, and
rural health facilities; and

(6) Agro-industrial projects that will enable tobacco farmers to be involved in the
management and subsequent ownership of projects, such as post-harvest and secondary
processing like cigarette manufacturing and by-product utilization.

“The Department of Budget and Management, in consultation with the Department of
Agriculture, shall issue rules and regulations governing the allocation and disbursement of this
fund, not later than one hundred eighty (180) days from the effectivity of this Act.

“(C) Incremental Revenues from the Excise Tax on Alcohol and Tobacco Products, —

“After deducting the allocations under Republic Act Nos. 7171 and 8240, eighty
percent (80%) of the remaining balance of the incremental revenue derived from this
‘Act shall be allocated for the universal health care under the National Health Insurance
Program, the attainment of the millennium development goals and health awareness
programs; and twenty percent (20%) shall be allocated nationwide, based on political
and district subdivisions, for medical assistance and health enhancement facilities
program, the annual requirements of which shall be determined by the Department of
Health (DOH).”

Section 4.. 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 implementation of this Act.

Section 5..Separability Clause. - If any of the provisions of this Act is declared invalid by a
competent court, the remainder of this Act or any provision not affected by such declaration of
invalidity shall remain in force and effect.

Section 6..Repeating Clause. - All laws, decrees, ordinances, rules and regulations,
executive or administrative orders, and such other presidential issuances as are inconsistent with
any of the provisions of this Act are hereby repealed, amended or otherwise modified
accordingly.

Section 7.

effectivity. - This Act shall take effect on January 1, 2017

Approved,