Package 2+ : Sin Taxes

Package 2+ of the Comprehensive Tax Reform Program includes proposed reforms on mining and sin taxes. Both proposals complement the enacted TRAIN law to generate additional revenues; make the tax system simpler, fairer, and more efficient; and align with President Duterte’s priority programs on social and environmental protection.

Proposed tobacco and alcohol taxation:

  • Ensure financial sustainability for health expenditure programs under the Universal Health Care (UHC) law with the following targets:
    • Sustain 100% Philhealth coverage
    • Provide adequate outpatient check-ups and medicine
  • Discourage excessive alcohol and tobacco consumption for better health and social outcomes, especially among the youth and poor, with the following targets:
      • Attain smoking prevalence of 15%
      • Avert more than 0.5 million smoking-related deaths
      • Achieve 10% reduction in harmful alcohol consumption
  • Ensure a world-class workforce

Legislative status

Tobacco

Republic Act No. 11346

On 04 June 2019, the Senate of the Philippines approved with a 21-0 unanimous affirmative vote the proposal to increase tobacco excise tax rates effective 01 January 2020. The House of Representatives adopted the Senate version on the same day.

Alcohol

House of Representatives
HB 8618 was approved on third and final reading last December 3, 2018. It proposes to increase the specific tax to P30 per proof liter with an indexation of 7% effective 2023, and ad valorem tax of 22%.

Senate

The joint DOH-DOF proposal was adopted by Sen. Pacquiao under Senate Bill (SB) 2197.

Salient features

On tobacco products
Increases the excise tax on cigarettes by PHP 10.0 effective 2020

2020 2021 2022 2023 2024 onwards
45.0 50.0 55.0 60.0 5% indexation

mposes an excise tax on heated tobacco products (HTPs)

 

Imposes an excise tax on vapor products with the following schedule:
Excise tax on vapor products (in PHP)Introduces a cap on local government share from tobacco excise collections:

  • Virginia tobacco producing provinces shall be allotted their share from the total excise tax collections not exceeding PHP 17.0 billion, notwithstanding the provision of RA 7171 on the uses of the funds, and
  • Burley and native tobacco producing provinces shall be allotted an amount equivalent to 5% of the revenue collected from the excise tax collections, not exceeding PHP 4.0 billion or 5 percent of the total excise tax collection on tobacco, whichever is lower.

Estimated incremental revenues of tobacco excise tax under the Congress-approved bill for Universal Health Care (UHC) Law:
Estimated revenues (in PHP billion)Totals may not add up due to rounding.
The Congress-approved bill defines HTPs and vapor products as the following:

  • HTPs are tobacco products that may be consumed through heating tobacco, either electrically or through other means, sufficiently to release an aerosol that can be inhaled, without burning or any combustion of the tobacco. HTPs include liquid solutions and gels that are part of the product and are heated to generate aerosol.
  • Vapor products, on the other hand, are liquid solutions or gels that contains nicotine, which transforms into an aerosol without combustion through the employment of a mechanical heating element, battery, or circuit that can be used to heat such solutions or gels, and includes but is not limited to a cartridge, a tank, and the device without a cartridge or tank. It is commonly known as e-liquids for e-cigarettes. It also includes electronic nicotine and non-nicotine delivery systems (ENDS/ENNDS), which are combinations of non-tobacco containing e-liquids or refills which can contain up to 65 milligrams per milliliter of nicotine in the e-liquid or refill and an electronic delivery device to produce an aerosol, mist or vapor that users inhale by mimicking the act of smoking.

The Congress-approved bill also specifies that excise tax collections from existing laws, such as the tobacco and alcohol products under the Sin Tax Law of 2012, and excise tax collections from sweetened beverages and tobacco products under Tax Reform for Acceleration and Inclusion (TRAIN) shall continue to form part of the funding sources for the annual budget for UHC.
The Congress-approved bill also requires that all packets and any outside wrapping of cigarettes, HTPs, vapor products, and similar products carry a health warning compliant with the Graphic Health Warning (GHW) Law or RA 10643.
Lastly, the Congress-approved bill imposes penalties such as fines and imprisonment on the following:

  • Selling of tobacco products below the combined excise and VAT;
  • Non-compliance with GHW Law;
  • Unlawful possession of cigarette paper in bobbins or rolls;
  • Unlawful possession of articles subject to tax without payment of the tax; and
  • Use of fake stamps and reusing of previously affixed stamps.

On alcohol products
For fermented liquor (e.g. beer), increase unitary excise tax to P40 per liter effective 2019. An additional P5 per liter shall be imposed from 2020 to 2022 then a 10% increase every year thereafter.
For distilled spirits (e.g. gin, brandy, vodka, whiskey, rum, and tequila) increase the specific excise tax rate to P40 per proof liter effective 2019, followed by an additional P5 per proof liter from 2020 to 2022. From 2023 onwards, it will be an additional 10%. For the ad valorem rate it is proposed at 25% from 2019 onwards.
For wines, increase the specific tax rate by 10% every year thereafter starting 2019.

 

Excise tax on HTPs (in PHP, per pack of 20)
2020 2021 onwards
10.0 5% indexation

 

 

Volume (in ml) 2020 2021 onwards
0.00 to 10.00 10.0 5% indexation
10.01 to 20.00 20.0
20.01 to 30.00 30.0
30.01 to 40.00 40.0
40.01 to 50.00 50.0
More than 50.00 50.0 + 

10.0 for every additional 10.00 ml

 

2020 2021 2022 2023 2024 Total
Cigarettes 14.9 22.0 26.0 32.0 30.9 125.9
HTP 0.1 0.1 0.1 0.1 0.1 0.5
Vapor products 0.6 0.7 0.7 0.7 0.7 3.4
Total 15.7 22.8 26.8 32.8 31.8 129.9

Publications