MANILA, Philippines — The House committee on ways and means has summoned three officials of vaping companies that have been accused of tax evasion, after a raid in a Valenzuela City warehouse yielded P1.43 billion worth of e-cigarette products.
During the committee’s hearing on Tuesday, Cagayan de Oro City 2nd District Rep. Rufus Rodriguez moved to issue a subpoena ad testificandum against the following:
- Gen Vincent Serrano Fabro and Lilac Tayaban of Flava
- Dennis Rostrata, president of Denkat Philippines
Committee chairperson and Albay 2nd District Rep. Joey Salceda approved the motion after it was seconded.
According to Rodriguez, who filed House Resolution No. 1437 asking for a probe on the Bureau of Customs (BOC) raid in Valenzuela last October 27 where P1.43 billion worth of Flava e-cigarettes were seized, there are allegations that Flava has been marking its products as freebase nicotine when it should be noted as nicotine salts.
READ: Customs seize illegally imported e-cigarettes in Valenzuela
Under Republic Act No. 11900 or the Vaporized Nicotine and Non-Nicotine Products Regulation Act, freebase nicotine has a lower tariff compared to nicotine salts because the latter has a higher concentration rate and, therefore, would be more potent.
“We are concerned about this, Mr. Chairman, because aside from the fact that they were discovered in a warehouse, they claim — Flava claimed — that these are freebase nicotine, not nicotine salt. The big difference here is that the taxes for nicotine salt is very much higher than the freebase tax,” Rodriguez said in his opening speech.
Salceda explained that freebase nicotine products are taxed at P60 per 10 milliliter (mL), while nicotine salt has a tariff of P50 per one mL. Companies can save, albeit illegally, by misdeclaring nicotine salts as freebase nicotine.
Currently, estimates of tax evaded based on the products seized at the warehouse raid is at P728 million. But Salceda pointed out that it can go up to P7.3 billion if proven that the products are actually nicotine salts and not freebase nicotine.
“But there are reports that suggest that the products themselves are misdeclared and that they should be in fact taxed as nicotine salt — the more highly concentrated product which is taxed at P50 per mL, which means they are only paying P6 per mL versus what they should be paying, P52 per mL,” Salceda explained.
“This could be the case of P728 million in evaded taxes, if you multiply it by 10, this adds up to be a P7.3 billion case. The point of this hearing is not to prosecute just one company but to look at ways by which we can prevent illicit trade in electronic cigarettes which will kill legitimate companies while allowing unregulated, dangerous substances in the market,” he added.
Flava is a product from China, which Rodriguez believes is imported by Denkat into the Philippines. Denkat legal counsel Lorman Arugay who was present during the hearing denied this, saying that he had not seen any document or board resolution linking the two companies.
However, when pressed further by Rodriguez, Arugay said that there appears to be some sort of collaboration between Flava and Denkat as evidenced in the advertisement materials released by both sides.
“This representation is aware that there is some form of a partnership between Flava and Denkat which is unofficial, your Honor, because I’ve checked all the corporate documents pertaining to the corporation and there appears to be no board resolution or any approval whatsoever about this alleged partnership,” Arugay, who was under oath, said.
“But you have stated that there is an arrangement and partnership, that’s on record, you cannot withdraw that anymore, you have said that there is a collaboration — yes, because the pictures of Rostrata and Fabro are everywhere,” Rodriguez replied.
“I have checked the documents that are available, your Honor, and based on all of these documents I have not seen anything that in any way ties my client,” Arugay noted.
Rodriguez then speculated that the documents that would link Denkat and Flava are hidden from Arugay. The lawmaker then asked the BOC’s Intellectual Property Rights Division to double-check if there are contracts tying the two vaping companies.
The Cagayan de Oro solon also moved for a subpoena duces tecum on the corporate documents of Denkat, for the committee’s scrutiny.
“Because probably they are hidden from you, counsel. But anyway counsel, you are representing Denkat, but you have already acknowledged that there is some collaboration among them,” Rodriguez said.
“So, therefore, I would like to have the BOC to be able to investigate more […] because everybody knows that Denkat is really together with Flava in importing them and distributing them, it is found in their advertisements online,” he added.
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