Restructuring of excise tax on alcohol and tobacco products

The law has restructured the excise tax on alcohol and tobacco products by adopting a combination of ad valorem and specific tax for distilled spirits and cigars and cigarettes, and gradually shifting the excise tax system to a unitary structure for fermented liquors and cigars and cigarettes by removing the price classification.

The law provides for a yearly increase in the excise tax rates on alcohol and tobacco products, and annual indexation by 4% of excise tax on wines, tobacco products and cigars effective January 1, 2014; distilled spirits effective January 1, 2016; and fermented liquor and cigarettes effective January 1, 2018.

Revised excise tax rates

The new excise tax rates on alcohol and tobacco products are as follows:

1. Distilled spirits

A specific tax of P20 plus 15% ad valorem tax of the net retail price (NRP) per proof liter shall be imposed effective January 1, 2013.

The ad valorem tax shall increase to 20% starting January 1, 2015, while the specific tax shall increase by 4% every year effective January 1, 2016

2. Wines

The following shall be the excise tax rates on wines effective January 1, 2013:

a. Sparkling wine/champagne regardless of proof, if the NRP per bottle of 750 mL volume capacity (excluding the excise tax and value-added tax) is:

1. P500 or less - P250

2. More than P500 - P700

b. Still wine and carbonated wine containing 14% alcohol by volume or less P30

c. Still wine and carbonated wine containing more than 14% but not more than 25% alcohol by volume P60

The excise tax on wine shall increase by 4% every year effective January 1, 2014.

3. Fermented liquors

For fermented liquor products with NRP per liter of volume capacity of P50.60 and less, the excise tax shall be P15 in 2013, P17 in 2014, P19 in 2015 and P21 in 2016.

In the case of fermented liquors with NRP of more than P50.60, the excise tax shall be P20 in 2013, P21 in 2014, P22 in 2015 and P23 in 2016.

A unitary tax of P23.50 per liter shall be imposed effective January 1, 2017, which shall be increased by 4% every year starting January 1, 2018.

4. Tobacco products

The excise tax on tobacco products shall increase to P1.75 effective January 1, 2013 on each kilogram of the following tobacco products:

a. Tobacco twisted by hand or reduced into a condition to be consumed in any manner other than the ordinary mode of drying and curing

b. Tobacco prepared or partially prepared with or without the use of any machine or instruments or without being pressed or sweetened except as otherwise provided hereunder

c. Fine-cut shorts and refuse, scraps, clippings, cuttings, stems and sweepings of tobacco

For tobacco that is specially prepared for chewing and is unsuitable for use in any other manner, an excise tax of P1.50 on each kilogram shall be imposed effective January 1, 2013.

The excise tax rates on tobacco products shall be increased by 4% every year effective January 1, 2014.

5. Cigars and cigarettes

Cigars shall be subject to specific tax of P5 per cigar plus 20% ad valorem tax of the NRP effective January 1, 2013. The P5 specific tax imposed on cigar shall increase by 4% every year effective January 1, 2014.

For cigarettes packed by hand, the excise tax per pack shall be P12 in 2013, P15 in 2014, P18 in 2015, P21 in 2016, and P30 in 2017. Thereafter, the excise tax on cigarettes packed by hand shall increase by 4% every year effective January 1, 2018.

In case of cigarettes packed by machine, if the NRP per pack is P11.50, the excise tax shall be P12 in 2013, P17 in 2014, P21 in 2015 and P25 in 2016.

On the other hand, if the NRP of cigarettes packed by machine is more than P11, the excise tax shall be P25 in 2013, P27 in 2014, P28 in 2015, and P29 in 2016.

A uniform P30 excise tax on cigarettes packed by machine shall be imposed effective January 1, 2017. The excise tax on cigarettes packed by machine shall increase by 4% every year effective January 1, 2018.

Earmarking of incremental revenues

After deducting the allocations under Republic Act Nos. (RA) 7171 and 8240, 80% of the remaining balance of the incremental revenues shall be allocated for the universal health care under the National Health Insurance Program (NHIP), while 20% shall be allocated nationwide for medical assistance and health enhancement facilities program.

RA 10351 was signed into law on December 19, 2012, and took effect on January 1, 2013.

This law was implemented by Revenue Regulations No. (RR) 17-2012. For the initial classification of alcohol and tobacco products according to the tax rates prescribed under RA 10351, see Revenue Memorandum Circular (RMC) 90-2012.

Tax Brief – January 2013

Punongbayan and Araullo