THE DEPARTMENT of Finance (DoF) pushed for a single tax rate on Thursday on all types of nicotine and vapor products to ease the collection burden on the Bureau of Internal Revenue (BIR).
“It is very hard for the Bureau of Internal Revenue to distinguish which is a freebase and a salt nicotine so there is actually an incentive for manufacturers to identity their products as freebase because it is taxed at a lower rate,” Finance Assistant Secretary Karlo S. Adriano Fermin told the Senate blue ribbon committee.
The government imposes a tax of P57 per milliliter (ml) on salt nicotine products, P6.3 per ml on freebase nicotine products, and P65 per 10 ml tax on classic nicotine products, according to the excise tax rates prescribed by the Bureau of Customs for 2024.
“Hence, we want to have a unitary rate for ease of tax administration because the BIR does not have that capacity to determine if this is salt nicotine or freebase,” Mr. Adriano said.
The BIR collected P130.91 billion in tobacco excise taxes in the first 11 months of 2024, well behind the pace needed to hit the year’s target of P185.34 billion.
In a separate statement, Finance Secretary Ralph G. Recto said his department is open to discussions on raising excise tax rates on tobacco products but warned that continuous tax increases could also make it more attractive and profitable to smuggle these products.
“We’re willing to listen because excise taxes on tobacco fell by roughly P50 billion. We want to increase our revenue there.”
“There is a relationship between high rates and illicit trade, smuggling.” Mr. Recto said. “That’s why we are looking for a sweet spot.”
The House ways and means committee is pushing for a moratorium on yearly excise rate increases on tobacco products.
According to an unnumbered substitute bill prepared by the committee obtained by BusinessWorld on Jan. 14, the pause in yearly hikes would start on Jan. 1 next year until Dec. 31, 2026, provided that a 5% increase will then be imposed starting Jan. 1 and every three years thereafter.
“The focus should be on enforcement because that’s what the experience has been,” Adolfo Jose A. Montesa, a program officer of the fiscal policy team at the Action for Economic Reforms, told BusinessWorld on the sidelines of the hearing.
“If you want to reduce illicit trade, you have to make it harder for people to access these products and you have to be able to go after the entire value chain.”
He cited the need for a track and trace system on tobacco products, requiring the DoF to bolster coordination with law enforcement bodies, and to impose stiffer penalties against smugglers.
President Ferdinand R. Marcos, Jr. has signed a law classifying agricultural smuggling, hoarding, profiteering, and financing of these crimes as acts of economic sabotage, if the goods exceed a valuation threshold of P10 million. — John Victor D. Ordoñez