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Executive Orders

Imposing an Ad Valorem Tax on Cigarettes in Addition to the Specific Tax Levied Thereon

Executive Order No. 960

EXECUTIVE ORDER NO. 960 September 1, 1984

IMPOSING AN AD VALOREM TAX ON CIGARETTES IN ADDITION TO THE SPECIFIC TAX LEVIED THEREON

WHEREAS, the fixed nature of the specific tax on cigarettes does not provide for a built-in flexibility to price changes as the tax yield does not automatically increase with an increase in cigarettes prices thereby necessitating frequent rate and/or base adjustments such that for the period 1978 to 1983 alone there have been four amendatory laws affecting the specific tax on cigarettes.

WHEREAS, the weighed average tax burden (ratio of specific taxes to wholesale price or value, net of tax) of locally manufactured cigarettes packed in 30's and 20's of about 10.69 percent and 29.29 percent, respectively, are low considering that cigarettes are non-essential commodities and the marginal rate of sales tax levied on non-essential commodities under the National Internal Revenue Code of 1977, as amended, is 50 percent, not to mention that the tax levied on cigarettes by some of our neighboring countries are quite high e.g., Republic of...

Summary of Executive Order No. 960

Imposition of Ad Valorem Tax on Cigarettes
- In addition to the specific tax imposed under Section 149(b) of the National Internal Revenue Code, an ad valorem tax equivalent to 10% of the manufacturer's or importer's gross selling price, net of specific tax, shall be levied, assessed and collected on cigarettes. (Sec. 186-A)
- The tax shall be paid by the manufacturer or importer at the same time as the specific tax. (Sec. 186-A)

Determination of Tax Base
- The wholesale price at which different brands of cigarettes are sold by the manufacturer, importer, or their sales agents shall determine the tax amount. (Sec. 186-A)
- If the manufacturer or importer also sells cigarettes at another establishment owned by them or in which they have an interest, the wholesale price in that establishment shall determine the tax amount. (Sec. 186-A)
- If the wholesale price is less than the cost of manufacture or importation plus expenses, the cost plus expenses shall determine the tax amount. (Sec. 186-A)

Filing of Sworn Statement
- Manufacturers and importers shall file a sworn statement with the Commissioner showing the different brands, corresponding wholesale prices, cost of manufacture or importation, and expenses. (Sec. 186-A)
- The statement shall be filed on designated dates and as often as required by the Commissioner. (Sec. 186-A)
- It is unlawful to sell cigarettes at a wholesale price higher than the one specified in the statement without prior written notice to the Commissioner. (Sec. 186-A)
- For imported cigarettes, the sworn statement shall be accompanied by verified sales invoices of the manufacturer and consular invoice, if available, and every pack shall bear the inscription "FOR EXPORT TO THE PHILIPPINES." (Sec. 186-A)

Penalty for Misdeclaration
- Any manufacturer or importer who knowingly misdeclares or misrepresents data in the sworn statement or sales invoice shall be penalized by summary cancellation or withdrawal of their permit to engage in business as a manufacturer or importer of cigarettes. (Sec. 186-A)
- If the violator is an alien, they shall be liable for deportation. (Sec. 186-A)

Minimum Wholesale Price
- The manufacturer's or importer's wholesale price of cigarettes subject to the ad valorem tax shall not be less than the prevailing wholesale price exclusive of the specific tax registered with the Bureau of Internal Revenue prior to the effectivity of this Order. (Sec. 2)

Implementation
- The Minister of Finance, upon recommendation of the Commissioner of Internal Revenue, shall promulgate the necessary rules and regulations to effectively implement the provisions of this Order. (Sec. 3)

Effectivity
- This Order shall take effect on September 1, 1984. (Sec. 4)

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