BIR cites impact of tobacco excise tax halt on govt revenue goals 

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Calls for a moratorium on excise taxes on tobacco products must not be put in place unless adjustments are made to the government’s excise tax targets, the Bureau of Internal Revenue (BIR) said. 

BIR Commissioner Romeo Lumagui Jr. was sought by reporters on Tuesday for his thoughts on the proposed moratorium on excise taxes on tobacco products being pushed in Congress to combat illicit trade.

“One issue that will be faced moving forward, if ever there will be a moratorium, is the corresponding increase in the excise tax goal on tobacco products because that has already been set. That incorporates an assumption of the yearly increases of the excise tax rate. So if there will be a moratorium, the collection goal needs to be adjusted,” Lumagui said on the sidelines of the Second International Tobacco Summit in Quezon City.

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Under the current law, tobacco taxes are set to increase by 5 percent annually. House Bill 11279 proposes to stop the tax increase in 2026 and replace the annual increase with 6 percent every two years starting in 2027.

Based on the Budget of Expenditures and Sources of Financing for fiscal year 2025, the programmed excise tax collections on tobacco products this year is P148.93 billion.

This translates to an increase of 5.08 percent from P141.73 billion under the 2024 program for tobacco excise tax.

Earlier this week, Secretary Frederick Go, of the Office of the Special Assistant to the President for Investment and Economic Affairs. said the government collected taxes worth P128.98 billion from tobacco products in January to November 2024.

Comparative figures on tobacco for January to November 2023 were not available but based on Go’s speech at the Tobacco Summit in Quezon City on Monday, the government generated about P134.1 billion in excise taxes from cigarettes for the whole of 2023.

Between 2021 and 2023, Go said excise tax revenues from cigarettes have declined by almost P42 billion to P134.1 billion, a drop of nearly 24 percent.

In his speech during the Tobacco Summit on Tuesday, Philippine Tobacco Institute president Jericho Nograles said the Philippines has experienced a significant rise in illicit tobacco trade in recent years, with the share of illicit cigarettes increasing from 5.4 percent in 2020 to 16.4 percent in 2024. 

He said this represents an alarming rise of over 200 percent in just four years. 

By 2025, Nograles said illicit products are expected to dominate nearly 19 percent of the domestic market.

“A critical element of a comprehensive strategy to combat illicit trade is stabilizing excise taxes through a temporary moratorium,” Nograles said.

Illicit cigarettes are already far cheaper than their legal counterparts, with some sold for as little as P40 per pack. , the Tobacco Institute official said.

“A moratorium would narrow this gap, reducing the incentive for consumers to purchase unregulated and untaxed products,” he said.

BIR’s Lumagui told reporters that historical data showed the decline in excise tax collections started when the excise tax on tobacco products was at P55.

“Before, when the rate was increasing, the collection also went up. But at a certain point, even as the rate continued to rise, the total collection started to decline,” Lumagui said.

“Imagine, a lot of these illicit cigarettes are being sold below the tax rate. I think they sell it for P40, and the tax rate is P63. So it’s really very lucrative. But if the cost is not that high, chances are if you’re the one involved, you will just comply,” the tax chief said.

He said the problem is not that simple because a number of factors are involved apart from excise tax, and that the first thing that must be done is to equalize the tax rates between cigarettes and vape.

Vape products are significantly under-taxed compared to traditional cigarettes. 

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A pack of cigarettes, with around 200 puffs, pays much higher taxes compared to a vape product with 5,000 to 10,000 puffs.

“If you break it down, the tax on a vape puff is far lower compared to a cigarette puff,” the revenue chief said.

The excise tax on cigarettes was P63 per pack in 2024, and the law mandated a yearly increase of 5 percent. 

The excise tax rates are P54.60 and P63 for the Nicotine Salt and Salt Nicotine per milliliter, and Conventional Freebase or Classic Nicotine per 10 milliliter in 2024, respectively.

The tax rates on vape are also mandated to increase by 5 percent a year.

In a separate presentation by cigarette maker Japan Tobacco International (JTI) at the Tobacco Summit, the company cited Malaysia’s experience when a 43 percent rise in excise taxes in 2015 led to a 42 percent increase in illicit cigarettes which continued the following several years.

The presentation showed there was no decline in cigarette consumption as consumers shifted to illicit cigarettes.

“Tax moratorium, port control policies and greater enforcement led to the decline of illicit cigarette volumes from 2021,” JTI said

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