SEN. Sherwin Gatchalian yesterday said lowering excise tax on tobacco products is not the solution to curb the illicit trade of said products as proposed in House Bill No. 11360, a measure seeking to introduce amendments to certain provisions of the National Internal Revenue Code.
Gatchalian said effective law enforcement operations and the prosecution of suspects in illicit tobacco trading would be a more effective move to stop it.
Gatchalian, who chairs the Committee on Ways and Means, stressed this when he conducted the fourth hearing on HB No. 11360 that was passed by the House of Representatives last February.
“Our findings during the three hearings are that the solution to curb illicit trade will not come from the reduction of taxes. It will come from strengthening our enforcement. It will come from giving incentives to our enforcement agencies and mobilizing our LGUs, as well as, of course, winning the cases. Without winning the cases, nothing’s going to happen,” Gatchalian said.
Gatchalian cited data from the committee’s April 2 hearing, which showed the Bureau of Customs (BOC) had 1,296 seizures but only had two convictions.
He said the Bureau of Internal Revenue (BIR) had 1,785 seizures but had only one conviction.
“So, for the BOC, that’s about 0.15 percent of all seizures that were convicted. For the BIR, it’s 0.06 percent …So, in other words, we are enforcing, the enforcement agencies are apprehending, they’re doing their intelligence work there. But in terms of prosecution and winning the cases, we’re very far off from winning cases,” he said.
“In other words, there’s no certainty of prosecution. If there’s no certainty of prosecution, people will not be afraid of getting penalized or being imposed with penalties when they smuggle cigarettes in our country,” he added.
Gatchalian said the committee is trying to address illicit trade even as he assured that he will not allow the House’s proposal to lower excise of tobacco products.
Gatchalian said the committee has also come up with its findings to curb technical smuggling of freebase and nicotine salt used in vapor products by imposing a single rate tax on all vapor products and imposing ad valorem taxes on vaping devices.
“We also detected that because of the huge difference between nicotine salt, as well as freebase products, we are seeing technical smuggling happening in our country because it’s very cheap or it’s cheaper to import freebase, almost 10 times cheaper. And because of that, we have seen an increase in uptake of vape products by the younger group or the younger segment of our population, particularly the adolescents,” he said.
BIR Assistant Commissioner Jethro Sabariaga said cigarette and heated tobacco products must be taxed at the same rate, but taxes on vapor products should be higher since their consumption is different, saying that a pack of cigarettes can be consumed in 300 puffs, while vape products can be consumed in 600 puffs.
Gatchalian asked the Department of Trade and Industry to follow the recommendation of the Department of Justice to limit vape flavors to just two — plain menthol and plain tobacco — since the government’s goal is to address the increasing use of vape products, and having an array of flavors makes them attractive to the youth.
Health Undersecretary Gloria Balboa agreed with Gatchalian, but DTI Assistant Secretary Marcus Valdez said the department is still studying the DOJ proposal.
Balboa said that based on a survey conducted by the Food and Nutrition Research Institute from 2019 to 2023, the number of adults who turned to vaping has increased from 1.4 percent to 9.9 percent, while adolescents recorded a big increase from 7.5 percent to 39.9 percent.
Balboa said the unregulated use of vapes, their different flavors, and an extensive marketing campaign were reasons for the uptick.
Health reform advocate Dr. Anthony Leachon said a “win-win” solution to curb the use of tobacco and vapor products “is actually to increase the tax rates of both tobacco and vapes.”
“If we start increasing tax rates at the same level of rigor with the vape, then we actually can prevent the onslaught of non-communicable diseases,” Leachon said.
Last February, the House passed on third and final reading HB No. 11360, a measure that would temper the rate of annual excise tax increase on tobacco products, which seeks to amend Sections 144, 145, 147, and 263-A of the National Internal Revenue Code.
The bill was authored by Albay 2nd district Rep. Joey Salceda, chairman of the House committee on ways and means.
The measure provides that the excise tax on tobacco, heated tobacco, cigarettes, and vapor products will increase by two percent every even-numbered year beginning January 1 next year, and by four percent on odd-numbered years starting January 1, 2027 until December 2035.
The excise tax on these products is fixed at five percent per year.
The measure also authorizes the President, upon the recommendation of the Secretary of Finance, to increase the rate to five percent in case the actual national government deficit exceeds the programmed deficit by two percent.
The measure also said there will be an excise tax of P40 per pack of 20 units or packaging combinations of not more than 20 units for heated tobacco products.
It also imposes a unitary tax rate of P66.15 per millimeter or a fraction thereof on vapor products that contain any liquid substance, regardless of nicotine content, including nicotine-free liquids or any similar products and similar products to be used as a substitute for cigarettes or other tobacco products.
