An Act Amending the National Internal Revenue Code (Increasing Excise Taxes on Alcohol and Electronic Cigarettes)

Case Overview and Summary

Summary of Republic Act No. 11467

Amendments to the National Internal Revenue Code of 1997

I. Value-Added Tax Exemptions (Section 1)
- Sale or importation of prescription drugs and medicines for diabetes, high cholesterol, and hypertension is exempt from VAT starting January 1, 2020. (Section 109(AA)(i))
- Sale or importation of prescription drugs and medicines for cancer, mental illness, tuberculosis, and kidney diseases is exempt from VAT starting January 1, 2023. (Section 109(AA)(ii))

II. Excise Tax on Alcohol Products (Section 2)

A. Distilled Spirits (Section 141)
- Excise tax is levied based on an ad valorem tax of 22% of the net retail price per proof and a specific tax per proof liter.
- Specific tax rates per proof liter:
    - January 1, 2020: P42.00
    - January 1, 2021: P47.00
    - January 1, 2022: P52.00
    - January 1, 2023: P59.00
    - January 1, 2024: P66.00
- Specific tax shall increase by 6% every year starting January 1, 2025.
- Definitions of "proof spirits", "proof liter", and "net retail price" are provided.

B. Wines (Section 142)
- Excise tax of P50.00 per liter is levied on wines starting January 1, 2020.
- The tax rate shall increase by 6% every year starting January 1, 2021.

C. Fermented Liquors (Section 143)
- Excise tax is levied on beer, lager beer, ale, porter, and other fermented liquors, except tuba, basi, tapuy, and similar fermented liquors.
- Tax rates per liter:
    - January 1, 2020: P35.00
    - January 1, 2021: P37.00
    - January 1, 2022: P39.00
    - January 1, 2023: P41.00
    - January 1, 2024: P43.00
- The tax rate shall increase by 6% every year starting January 1, 2025.

III. Tobacco Products, Heated Tobacco Products, and Vapor Products (Section 3)

A. Heated Tobacco Products (Section 144(B))
- Excise tax is levied on heated tobacco products.
- Tax rates per pack of 20 units or packaging combinations of not more than 20 units:
    - January 1, 2020: P25.00
    - January 1, 2021: P27.50
    - January 1, 2022: P30.00
    - January 1, 2023: P32.50
- The tax rate shall increase by 5% every year starting January 1, 2024.
- Selling heated tobacco products to persons below 21 years old is prohibited and punishable by a fine of P10,000.00 and imprisonment of 30 days.
- The Food and Drug Administration (FDA) shall regulate the manufacture, importation, sale, packaging, advertising, and distribution of heated tobacco products.

B. Vapor Products (Section 144(C))
- Excise tax is levied on vapor products, classified as nicotine salt/salt nicotine and conventional "freebase" or "classic" nicotine.

    1. Nicotine Salt/Salt Nicotine
        - Tax rates per milliliter or fraction thereof:
            - January 1, 2020: P37.00
            - January 1, 2021: P42.00
            - January 1, 2022: P47.00
            - January 1, 2023: P52.00
        - The tax rate shall increase by 5% every year starting January 1, 2024.

    2. Conventional "Freebase" or "Classic" Nicotine
        - Tax rates per 10 milliliters or fraction thereof:
            - January 1, 2020: P45.00
            - January 1, 2021: P50.00
            - January 1, 2022: P55.00
            - January 1, 2023: P60.00
        - The tax rate shall increase by 5% every year starting January 1, 2024.
- Selling vapor products to persons below 21 years old is prohibited and punishable by a fine of P10,000.00 and imprisonment of 30 days.
- The FDA shall regulate the manufacture, importation, sale, packaging, advertising, and distribution of vapor products, including banning the sale to non-smokers or persons below 21 years old and banning flavorings.
- The manufacture, importation, sale, and distribution of vapor products with flavoring other than plain tobacco or plain menthol is prohibited.

IV. Definition of Vapor Products (Section 4)
- Vapor products are defined as electronic nicotine and non-nicotine delivery systems (ENDS/ENNDS), including cartridges, tanks, and devices without cartridges or tanks, commonly known as nicotine salt/salt nicotine and conventional "freebase" or "classic" nicotine, and other similar products, regardless of nicotine content.

V. Supervision over Establishments Producing Taxable Output (Section 5 - Vetoed)

VI. Unlawful Possession or Removal of Articles Subject to Excise Tax (Section 6)
- Penalties for unlawful possession or removal of imported articles subject to excise tax without payment of tax:
    - If the appraised value does not exceed P250,000.00, a fine of P100,000.00 to P200,000.00 and imprisonment of 60 to 100 days.

VII. Selling Heated Tobacco Products and Vapor Products at a Price Lower Than Combined Excise and Value-Added Taxes (Section 7)
- Selling heated tobacco products and vapor products at a price lower than the combined excise and value-added taxes is punishable by a fine of not less than 10 times the amount of excise tax plus VAT due, but not less than P200,000.00 nor more than P500,000.00, and imprisonment of 4 to 6 years.

VIII. Offenses Relating to Stamps (Section 8)
- Penalties for offenses relating to false/counterfeit/recycled tax stamps:
    - Fine of P10,000,000.00 to P500,000,000.00 and imprisonment of 5 to 8 years.
    - If the cumulative possession of illegal stamps exceeds P50,000,000.00, a fine of P500,000,000.00 or up to 10 times the value of the illegal stamps seized, whichever is higher, and imprisonment of 10 to 15 years.

IX. Disposition of Revenues from Excise Tax (Section 9)

A. Sweetened Beverages (Section 288-A(A))
- 50% of the total revenues from the excise tax on sweetened beverages shall be allocated and used exclusively for specific purposes.

B. Alcohol Products (Section 288-A(B))
- 100% of the total revenues from the excise tax on alcohol products shall be allocated and used exclusively as follows:
    - 60% for the implementation of the Universal Health Care Act of 2019
    - 20% allocated nationwide for medical assistance and the Health Facilities Enhancement Program
    - 20% for the attainment of the Sustainable Development Goals (SDGs)

C. Heated Tobacco Products and Vapor Products (Section 288-A(D))
- 100% of the total revenues from the excise tax on heated tobacco products and vapor products shall be allocated and used exclusively as follows:
    - 60% for the implementation of the Universal Health Care Act of 2019
    - 20% allocated nationwide for medical assistance and the Health Facilities Enhancement Program
    - 20% for the attainment of the Sustainable Development Goals (SDGs)

X. Joint Congressional Oversight Committee on Illicit Trade on Excisable Products (Section 10)
- A Joint Congressional Oversight Committee on Illicit Trade on Excisable Products shall be constituted to review and evaluate programs and performance in addressing illicit trade on excisable products, require reports and data, hold public hearings, deputize enforcement agencies, and perform other necessary duties and functions.

XI. Annual Report (Section 11)
- Government agencies and offices involved in the implementation of the Universal Health Care and the SDGs shall submit a detailed report on the expenditure of the earmarked amounts to the Congressional Oversight Committee annually.

XII. Implementing Rules and Regulations (Section 12)
- The Secretary of Finance shall promulgate the necessary rules and regulations for the effective implementation of this Act.

XIII. Separability Clause (Section 13)

XIV. Repealing Clause (Section 14)

XV. Effectivity (Section 15)
- This Act shall take effect on January 1, 2020 after its complete publication in the Official Gazette or in a newspaper of general circulation.