Rep. Mikaela Suansing of Nueva Ecija
MANILA, Philippines 鈥撀燭he House of Representatives has approved on second reading a bill seeking to rationalize excise tax rates on tobacco and vapor products to curb the decline in tax collections caused by illicit trade.
Nueva Ecija Rep. Mikaela Suansing stressed that the measure, if enacted, could result in an 鈥渁ggregate revenue recovery of P66 billion across five years.鈥�
Sponsoring House Bill 11360, Suansing noted that while the 2013 Sin Tax Law initially succeeded in reducing smoking rates and increasing revenues, collections have been falling annually since 2021. She pointed out that excise tax revenues dropped from P176 billion in 2021 to P160 billion in 2022, and further declined to P135 billion in 2023. Meanwhile, adult smoking prevalence rose from 18.5% in 2021 to 23.2% in 2023, driven by the proliferation of illicit trade.
鈥淚llicit cigarettes pose a serious threat to peace and order as they fund illegal activities,鈥� Suansing said.
Deputy Speaker and Ilocos Sur Rep. Kristine Singson-Meehan, a co-sponsor of the bill, argued that 鈥渢he increasing tax rate is no longer effective in reducing smoking rates.鈥�
Citing a study by the Food and Nutrition Research Institute (FNRI), she emphasized that adult smoking prevalence has grown, while adolescent smoking prevalence has doubled from 2.3% in 2021 to 4.8% in 2023.
She also pointed out that legal tobacco volumes and tax collections continue to 鈥渄ecline despite yearly tax increases,鈥� while 鈥渋llicit trade is continuing to increase.鈥�
Meehan further noted, 鈥淢ore than 2 million Filipinos depend on tobacco for their livelihood. Declining government collections affect government revenue and reduce funding for national health programs and infrastructure development.鈥�
Cagayan de Oro City Rep. Rufus Rodriguez, another co-sponsor, voiced concern over how illicit trade has undermined the objectives of the Sin Tax Law.
鈥淭he objectives of the Sin Tax Law, which are to raise government revenues and protect public health, have come under immense strain from illicit trade, and I鈥檓 very much concerned because Mindanao is the first island so much affected by illicit trade,鈥� Rodriguez said.
He emphasized that revenue losses from illicit trade have adversely impacted health programs funded by the Universal Health Care Law.
鈥淭o address this issue, it is imperative for the government to recalibrate its existing revenue measures and ensure our tax laws do not unduly incentivize, nor give premium to, illicit traders at the expense of legitimate businesses,鈥� he stated.
Suansing also highlighted the need for balance, saying, 鈥淲hile it is in the country鈥檚 legitimate interest to impose higher taxes on sin products, we need to be cognizant of its unintended consequences.鈥�
Under the proposed bill, tax rates will increase by 2% every even-numbered year starting January 1, 2026, and by 4% every odd-numbered year starting January 1, 2027. These adjustments will continue until December 31, 2035. To prevent frontloading, the Department of Finance, in consultation with the Bureau of Internal Revenue, will establish a reasonable threshold for removals.
The bill also grants the President the authority, upon the Secretary of Finance鈥檚 recommendation, to increase the tax rate to 5% if the national government鈥檚 actual deficit exceeds the programmed deficit equivalent to 2% of the previous year鈥檚 gross domestic product.
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A review will be conducted after a decade to assess the impact of the tax on revenue collections, health costs, and smoking prevalence.
Rodriguez underscored the bill鈥檚 intent to curb the widespread misdeclaration of vapor products to evade taxes.
鈥淚n vapor products, these unscrupulous producers misdeclare their kind of vapor product,鈥� he said.
He explained that some manufacturers classify nicotine salt products as freebase nicotine, which is taxed at a lower rate under current law, reinforcing the need for a unified tax rate on both types.
鈥淚llicit traders capitalize on such regulatory gaps to evade higher taxes imposed on certain nicotine varieties, ultimately undermining public health efforts and fair market practices,鈥� Rodriguez added.
If enacted, the bill will increase tax rates on vapes and heated tobacco products. Vapor products containing any liquid substance, regardless of nicotine content鈥攊ncluding nicotine-free liquids鈥攚ill be taxed at an increased and uniform rate of P66.15 per milliliter, matching the tax on a pack of 20 cigarettes. Heated tobacco products will see a 15% excise tax hike, raising the rate from P35 to P41 per pack of 20 sticks.
Under current law, excise tax rates for cigarettes, heated tobacco products, and vapor products increase by 5% annually.