House investigates vape firm suspected of tax evasion

INQUIRER FILE PHOTO

The House ways and means committee has requested the Bureau of Internal Revenue (BIR) to verify the licenses and product specifications of an e-cigarette brand being investigated for “possibly massive” tax evasion totaling billions of pesos.

It also issued a separate subpoena ad testificandum to officials of Flava, a vape product brand from China, and DenKat Trading, a local firm suspected of importing the brand.

“I requested the BIR to write to the Food and Drug Administration and the Bureau of Product Standards of the Department of Trade and Industry to validate the product specifications of Flava,” said Albay Rep. Joey Salceda, who chairs the House committee.

He added that he also asked the BIR to check Flava’s licenses posted on its online shop.

The House committee met on Tuesday to investigate the 1.4 million pieces of 10 millimeter Flava disposable vape cartridges without proper documentation that were recovered during a raid on a Valenzuela City warehouse on Oct. 27.

According to Salceda, Flava is being suspected of mislabeling its products as conventional freebase e-cigarettes, which are taxed at P60 per 10 ml, instead of salt nicotine, which is more concentrated and taxed at P52 per ml.

He noted that under Section 263 of the National Internal Revenue Code, illicit trade in excisable products was subject to a penalty of not less than 10 times the value of the unpaid excise tax.

“The product is declared as freebase, which should be taxed at P60 per 10 ml, but there are reports, which suggest that the products themselves may be misdeclared and that they should, in fact, be taxed as nicotine salt, the more highly concentrated product, which is taxed at P52 per ml,” Salceda said.

P7.3-B taxes lost

He added that Flava’s own marketing “reveals hints that it is, in fact, salt nicotine.”

Under Republic Act No. 11900, or the Vaporized Nicotine and Non-Nicotine Products Regulation Act, freebase nicotine has a lower tariff compared to salt nicotine because the latter has a higher concentration rate and is more potent.

“For a 10 ml equivalent, the most dominant nicotine salt product in the market can provide 2,800 puffs. Flava markets itself to provide 6,000 to 10,000 puffs. So, by this alone, you could imagine that the product is concentrated. This could thus be a case of P728 million in evaded taxes. If you multiply that by 10, this ends up being a P7.3 billion case,” Salceda said.

He also asked the Department of Finance and the BIR to come up with strategies to curb illicit trade in electronic cigarettes.

“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,” Salceda said.

The House ways and means committee also summoned officials of Flava and DenKat Trading, namely Gen Vincent Fabro and Lilac Tayaban of Flava, and Dennis Rostata of Denkat. INQ