DOF eyes 5-year revenue of P397.4B from sin products with further tax hikes

If passed into law, the Department of Finance’s proposal to further jack up excise taxes on heated tobacco, vapes and alcohol products will yield a higher incremental revenue for the government of P397.4 billion during a five-year period.

DOF estimates showed that Republic Act No. 11346 signed by President Duterte last month would generate only P128.9 billion in incremental five-year tax revenue from the higher levy on cigarettes and excise taxes on heated tobacco and vapor products.

However, Finance Secretary Carlos G. Dominguez III said the new taxes on e-cigarettes under RA 11346 were “too low.”

As such, the DOF had proposed to charge heated tobacco and ‘vapes’ the same excise tax rates as those slapped on regular cigarettes beginning next year.

Under RA 11346, the government expects to collect additional revenue of P15.5 billion in revenue next year; P22.6 billion in 2021; P26.6 billion in 2022; P32.6 billion in 2023 and P31.6 billion in 2024.

For the period 2020 to 2024, incremental revenue from higher cigarette excise taxes will total P125.9 billion; from heated tobacco products, P200 million; and from vapes, P2.8 billion.

Under RA 11346, the excise tax on cigarettes will be increased from P35 per pack to P45 in 2020; P50 in 2021; P55 in 2022, and P60 in 2023, to be followed by a 5-percent annual indexation from 2024 onward.

Heated tobacco products will be slapped an excise tax of P10 a pack starting Jan. 1, 2020, to be followed by yearly hikes of 5 percent starting 2021.

As for vapor products, individual cartridges, refills, pods or containers of their liquid solutions will be slapped tax of P10 per 10 mL, or a larger P50 on top of P10 per additional 10 mL for those being sold in volumes higher than 50 mL in 2020.

Under the new proposal, the DOF wanted vapes to be slapped a tax of P45 per mL in 2020, to be followed by P5 additional per pack per year similar to ordinary cigarettes.

According to the DOF’s estimates, the further increase in
e-cigarette excise taxes will generate P19.5 billion more in the next five years—P3.2 billion next year, P3.6 billion in 2021, P3.9 billion in 2022, P4.3 billion in 2023, and P4.5 billion in 2024.

Also, the DOF and the Department of Health (DOH) were pushing for higher alcohol tax.

The joint DOF-DOH proposal provided for an increase in the specific tax per liter of fermented liquors to P40 in 2020, P45 in 2021, P50 in 2022, P55 in 2023, to be followed by a 10-percent yearly indexation from 2024 onward.

The DOF also wanted to apply the same tax rates of fermented liquor on alcopops—flavored alcoholic drinks popular among the youth.

For distilled spirits, the joint DOF-DOH proposal was to raise the ad valorem tax to 25 percent next year from 20 percent at present, while also jacking up the specific tax per proof liter from P23.4 currently to P40 next year, P45 in 2021, P50 in 2022, P55 in 2023, and 10-percent indexation each year starting 2024.

Sparkling wines and champagnes will be slapped a specific tax of P348 (for P500 net retail price or less than 750-mL volume capacity) and P974 (for more than P500 per bottle of 750-mL volume) per liter next year, to be followed by 10-percent indexation every year from 2021 onward.

In the case of still wines and carbonated wines, the proposal was to levy P42 per liter for those with 14-percent alcohol or less, and P84 for those with more than 14-percent alcohol content, after which a similar 10-percent yearly indexation will be implemented beginning 2021.