BIR studying to enhance enforcement of Vape Law

BIR Commissioner Romeo Lumagui Jr.

MANILA, Philippines – To shore up collections from the two-tier excise tax on vapes, the Bureau of Internal Revenue (BIR) is studying how to slap the higher rate by default unless vape manufacturers can prove otherwise.

“We’re examining ways to address loopholes in the system and are coordinating with lawmakers to develop more effective regulations,” BIR Commissioner Romeo Lumagui Jr. said at a news forum in Manila. “Given the industry’s novelty and the varying formulas used by its players, we’re working to establish new regulations and refine existing ones.”

Lumagui stressed the need to combat smuggling, illicit trade, misdeclaration, and tax evasion involving vape products. “The vape industry and cigarette companies must comply,” he said. “The BIR is ready to assist all stakeholders in complying and paying the correct taxes.”

Bienvenido Oplas, president of Minimal Government (MG) Thinkers Inc., noted the declining excise tax collection from tobacco and vape products due to rising tax rates, which he said encouraged smuggling. Oplas said that in the case of the vape industry, smuggling was caused by the different tax rates for nicotine salt and nicotine freebase.

Some vape companies are claiming their products are freebase but are actually nicotine salt to avoid paying higher taxes. Oplas said while he prefers the removal of the distinction between the two, this would require legislation. He said that as a quick solution, the BIR could charge the same rate for both nic salt and freebase through an administrative issuance.

“Technical smuggling is a form of misdeclaration,” Oplas said. “For example, nicotine salt and freebase liquid have different import duties. The significant difference suggests that many importers declare products as freebase to avoid higher tariffs. Nearly 100 percent of declarations are for freebase, even though the actual product may be nicotine salt.”

Atty. Leon P. Mogao Jr., chief of the Intellectual Property Rights Division of the Bureau of Customs, proposed importers should pay P54.60/ml as default and should prove that their product is freebase to be assessed with a P63/10 ml freebase rate.

Mogao said the BOC aggressively conducted enforcement operations against illicit vape products. “In fact, for the period 2023 up to August of this year, the BOC has already seized or apprehended vape products without legitimate papers with an estimated value of P6.5 billion,” he said. “Based on records, it appears that these vape products mostly came from China.  Many of these products were confiscated in the southern borders, particularly Zamboanga.”

Joey Dulay, president of the Philippine E-Cigarette Industry Association (PECIA), underscored the need for proper laboratory testing of nicotine products. Dulay suggested that before the Philippine Standard (PS) mark is approved, vape traders should provide proof that their product is either nic salt or freebase through testing by an accredited laboratory.

Dulay said the full implementation of the law started in September 2024, following an 18-month transition period, which gave industry players a leeway to submit the necessary documents.

Lumagui said the BIR would also continue to enforce the Vape Law to ensure that all industry players pay correct taxes. He said the government was losing billions of pesos because of smuggling and illicit trade of cigarettes and vape products.

“As far as the BIR is concerned, we are strictly monitoring the vape industry,” Lumagui said. “We used to focus on the big importers and manufacturers who don’t comply and don’t pay the right tax.  “Now we’re going down to all of them, including stores on the streets.”

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“We are not targeting small businesses, but it is not an excuse for them. Big importers and smugglers thrive because they are patronized by resellers. If no one will buy from illicit traders, they would comply. That’s why we will monitor all vape shops,” Lumagui said.