Duterte OKs higher ‘sin tax,’ vetoes item limiting BIR powers

President Rodrigo Duterte has signed a sin tax reform measure into law, raising the excise on alcohol, electronic cigarettes and heated tobacco products but vetoed a provision seeking to limit the search and seizure powers of the Bureau of Internal Revenue (BIR).

Additional revenue from the new law will fund the Universal Health Care Act, which grants all Filipinos the full spectrum of health care ranging from access to preventive and curative care to rehabilitative and palliative care.

The law, or Republic Act No. 11467, also provides for the expansion of value-added tax exemptions on the sale and importation of prescription drugs for diabetes, high cholesterol, hypertension, cancer, mental illness, tuberculosis and kidney diseases.

The Department of Health on Thursday hailed the enactment as a “win-win” for all.

“This will give us an enormous strategic advantage in reducing noncommunicable diseases and providing the necessary restrictions in the accessibility and availability of harmful products, especially among the youth,” Health Secretary Francisco Duque III said in a statement.

P22B in revenue

The new sin tax law is expected to generate P22.2 billion in revenue in the first year of implementation. Of this amount, 60 percent will be allocated for universal health care programs, 20 percent for health facilities enhancement programs and 20 percent for attaining sustainable development goals.

Mr. Duterte vetoed Section 5 of the measure, which would have required the BIR to get a court order before conducting search and seizure operations.

“I hereby register the item veto of Section 5 of the measure, which was intended to further amend Section 152 of the NIRC (National Internal Revenue Code) as it effectively curtails the power of the State to collect taxes, and renders powerless the BIR to effectively implement enforcement mechanisms against illicit tobacco products,” he said in a message to Congress.

He added: “This phrase ‘upon order of the court’ unnecessarily requires the BIR, in the exercise of its mandate to examine, search and seize … to secure an order from the court before its officers may be allowed to enter any house, building or place where tobacco, heated tobacco and vapor products are produced or kept, or are believed to be produced or kept.’’

Such restriction, he noted, did not apply to any other taxable article.

The 1987 Constitution provides that the President may veto certain items in an appropriation, revenue or tariff bill, but the veto does not affect the items he has no objection to.

Presidential spokesperson Salvador Panelo said the vetoed provision “reduced” the capability and the power of the BIR to do its job.‍‍‍‍‍‍‍‍‍

“Its job is to take care of the revenues and that you can do something immediately if you see irregularities. If you file a case, it will take too long,” Panelo said at a press briefing on Thursday.

Distilled spirits, beer, wine

‍‍‍‍‍‍‍RA 11467 imposes a 22-percent ad valorem tax, on top of the specific tax of P42 per proof liter for distilled spirits in 2020.

This tax will go up to P47, P52, P59 and P66 per proof liter from 2021 to 2024, and will be raised by 6 percent every year starting 2025.

The excise on beer and fermented products will be P35 per liter for 2020, with a P2 increase each year until 2024, and a 6-percent increase in succeeding years.

In addition, the government will impose a specific tax of P50 per liter on wines, with an annual tax increase of 6 percent.

Heated tobacco, vape

As to heated tobacco products, the new tax will be P25 per pack in 2021, P27.50 in 2022, P30 in 2023 and P32.50 in 2024. This will increase by 5 percent in succeeding years.

For vapor products classified as nicotine salt, an excise of P37 will be imposed in 2021, P42 in 2022, P47 in 2023 and P52 in 2024, and with an annual increase of 5 percent in succeeding years.

For freebase or classic nicotine vapes, taxes will be increased to P45 in 2021, P50 in 2022, P55 in 2023, and P60 in 2024 and an annual tax increase of 5 percent in the following years.

The law requires the Food and Drug Administration (FDA) to periodically determine and regulate the manufacture, importation, sale, packaging, advertising and distribution of heated tobacco and other vapor products, including banning the sale to persons below 21 years old.

Violators face a fine ranging from P10 million to P500 million, and imprisonment ranging from five to eight years.

In his veto message, the President said the new sin tax law was a “welcome development in the government’s efforts to protect the public’s health from the ill-effects of sin products, and in ensuring access and affordable health care services to Filipinos through additional revenues.”

Regulatory framework

He directed the FDA to “formulate the intended regulatory framework” on the manufacture, proliferation, distribution and use of heated tobacco products and vapor products, and for agencies to “immediately operationalize the same upon issuance.”

“I am confident that the multitiered effect of this law as a cost-effective health measure to reduce smoking and alcohol consumption among Filipinos support the Universal Health Care Act,” Mr. Duterte said.

He added: “Coupled with its positive impact in improving domestic resource mobilization, this measure will significantly reinforce and advance this administration’s commitment to provide a better quality of life for every Filipino.” —WITH A REPORT FROM TINA G. SANTOS