SUBJECT : Prescribing the Implementing Guidelines on the Revised Tax Rates on Alcohol and Tobacco Products Pursuant to the Provisions of Republic Act No. 9334, and Clarifying Certain Provisions of Existing Revenue Regulations Relative Thereto
TO : All Internal Revenue Officials and Others Concerned
SECTION 1. SCOPE. – Pursuant to the provisions of Section 244 in relation to Section 245 of the National Internal Revenue Code (NIRC) of 1997, as amended, these Regulations are hereby promulgated to implement the provisions of Republic Act No. 9334
“An Act increasing the specific tax rates imposed on alcohol and tobacco products amending for the purpose Sections 141, 142, 143, 144, and 145 of the National Internal Revenue Code of 1997, as amended”, as well as to clarify certain provisions of existing revenue regulations on alcohol and tobacco products.
SEC. 2. DEFINITION OF TERMS. – For purposes of these Regulations, the following words and phrases shall have the meaning indicated below:
(a) The ACT – shall refer to Republic Act (R.A.) No. 9334;
(b) ALCOHOL PRODUCTS – shall refer to distilled spirits, wines and fermented liquors as generally classified under Chapter III, Title VI of the National Internal Revenue Code (NIRC) of 1997, as amended;
(c) TOBACCO PRODUCTS – shall refer to tobacco products, cigars, cigarettes packed by hand or cigarettes packed by machine as generally classified under Chapter IV, Title VI of the NIRC of 1997, as amended;
(d) VARIANT OF A BRAND – shall refer to a brand of alcohol or tobacco products on which a modifier is prefixed and/or suffixed to the root name of the brand.
For this purpose, the term “root name” shall refer to a letter, word, number, symbol, or character; or a combination of letters, words, numbers, symbols, and/or characters that may or may not form a word; or shall consist of a word or group of words, which may or may not describe the other word or words: Provided, That the root name has been originally registered as such with the Bureau of Internal Revenue (BIR).
Examples of root name: “L & M“, “ß?”, “10”, “Pall Mall”, “Blue Ice”, “Red
Horse”, etc.
The term “modifier” shall refer to a word, a number, or a combination of words and/or numbers that specifically describe the root name to distinguish one variant from another whether or not the use of such modifier is a common industry practice. The root name, although accompanied by a modifier at the time of the original brand registration, shall be the basis in determining the tax classification of subsequent variants of such brands.
Examples of modifiers: For cigarettes: “Filter”, “Menthol”, “Kings”, “100’s”, “American Blend”, “International”, etc.
For beer : “Light”, “Dry”, “Ice”, “Lager”, “Hard”, “Premium”, etc.
Any variation in the color and/or design of the label (such as logo, font, picturegram, and the like), manner and/or form of packaging or size of container of the brand originally registered with the BIR shall not, by itself, be deemed an introduction of a new brand or a variant of a brand: Provided, That all instances of such variation shall require a prior written permit from the BIR.
In case such BIR-registered brand has more than one (1) tax classification as a result of the shift in the manner of taxation from ad valorem tax to specific tax under R.A. No. 8240, the highest tax classification shall be applied to such brand bearing a new label, package, or volume content per package, subject to the provisions of the immediately preceding paragraph.
ILLUSTRATION:
No. 1 - XYZ, Inc., a cigarette manufacturer, owns the brand, “KC” that is packaged in soft and hard packs. “KC” is an existing brand that is being manufactured since 1995. “KC” in soft pack is tax classified under low-priced tax category while “KC” in hard pack is under the medium-priced tax category. In 2005, the current net retail prices per pack of “KC” in soft and hard packs are P8.00 and P16.00, respectively. “XYZ, Inc. intends to introduce “KC” in soft tin cans with a suggested net retail price of P 15.00 per pack falling under the high-priced tax category.
Question: What is the proper tax classification of “KC” in soft tin cans upon introduction in 2005?
Answer: “KC” in soft tin cans shall be tax classified as mediumpriced brand following the tax classification of “KC” in hard pack considering that the suggested net retail price per pack of “KC” in soft tin cans is lower than the current net retail price per pack of “KC” in hard pack.
Question: Assuming that the current net retail prices of “KC” in soft and hard packs are P8.00 and P14.00, respectively, what is now the proper tax classification “KC” in soft tin cans upon its introduction in the domestic market in 2005?
Answer: “KC” in soft tin cans shall be classified under the premium-priced category of P25.00 per pack. It shall be treated as a variant of “KC” in soft and hard packs since its suggested net retail price is higher than the current net retail prices of the originally registered “KC” brands.
In case a letter(s), number(s), symbol(s) or word(s) is/are deleted from or replaced by another letter(s), number(s), symbol(s) or word(s) in the root name of a previously BIR-registered brand, such that the introduction of the said brand bearing such change(s) shall ride on the popularity of the said previously registered brand, the same shall be classified as a variant of such previously registered brand: Provided, That where the introduction of such brand by another manufacturer or importer will give rise to any legal action with respect to infringement of patent or unfair competition, such brand shall be considered a variant of such previously registered brand.
ILLUSTRATION: No 2.
| ROOT NAME | MODIFIER IS PREFIXED | MODIFER IS SUFFIXED | MODIFIED ROOT NAME |
| L & M | Kings L & M | L & M Lights | M & L |
| 10 | Perfect 10 | 10 Menthols | Ten |
| Blue Ice | Wild Blue Ice | Blue Ice Supreme | Blue Iced |
| Red Horse | Flying Red Horse | Red Horse Premium | Reddish Horse |
| Pall Mall | Long Pall Mall | Pall Mall Filter | Pal Mall |
(e) EXISTING BRAND – shall refer to a brand of alcohol or tobacco products which is included in Annexes A, B, C and D of R.A. No. 8240 and Revenue Regulations (RR) Nos. 1-97 and 2-97;
(f) NEW BRAND – shall refer to a brand that is registered and introduced in the market after the date of effectivity of R. A. No. 8240;
(g) NET RETAIL PRICE – shall refer to the price, as determined by the BIR through a survey to be conducted by itself, or by the National Statistics Office (NSO) when deputized for the purpose by the BIR, at which an alcohol or tobacco product is sold at retail in such number of major supermarkets or retail outlets as are prescribed by the Act, excluding the amount intended to cover the applicable excise tax and value-added tax.
(h) SUGGESTED NET RETAIL PRICE – shall refer to the net retail price at which a new brand of locally manufactured or imported alcohol or tobacco product is intended to be sold by the manufacturer or importer at retail in major supermarkets or retail outlets in the prescribed minimum number of Revenue Regions for brands with national or regional markets;
(i) MARKETED NATIONWIDE – shall refer to a brand that is commercially produced and marketed, as defined herein, in all the Revenue Regions in Metro Manila and in at least fifty one percent (51%) of all the other Revenue Regions;
(j) METRO MANILA and REGIONS – when used in these Regulations, the term “region/s” shall refer to the revenue regions composed of revenue district offices established by the BIR for internal revenue tax purposes. The coverage of the revenue regions are as follows:
REVENUE REGION NO. / PROVINCES/CITIES/MUNICIPALITIES COVERED
METRO MANILA REVENUE REGIONS
5 – Valenzuela, Metro Manila - Province of Bulacan, Cities of Valenzuela and Caloocan, and Municipalities of Malabon and Navotas
6 – Manila - City of Manila including Palawan, Romblon and Occidental Mindoro
7 – Quezon City - Province of Rizal, Quezon City, San Juan, Mandaluyong City, Marikina City, Pasig City and Cainta City
8 – Makati City - Cities of Makati, Paranaque, Las Piñas, Muntinlupa and Pasay and Municipalities of Taguig and Pateros
OTHER REVENUE REGIONS
1 – Calasiao, Pangasinan - Provinces of Ilocos and Pangasinan
2 – Cordillera Administrative Region (CAR) - Abra, Mountain Province, Benguet, Kalinga-Apayao, Ifugao and Baguio City
3 – Tuguegarao, Cagayan - Cagayan, Isabela, Quirino, Nueva Vizcaya
4 – San Fernando, Pampanga - Pampanga, Tarlac, Zambales, Bataan, Aurora, Nueva Ecija
9 – San Pablo City - Laguna, Quezon, Marinduque Batangas, Cavite, Oriental Mindoro
10 – Legazpi City - Bicol Region
11 – Iloilo City - Iloilo, Antique, Aklan, Capiz
12 – Bacolod City - Negros Oriental and Occidental, Dumaguete City and Bacolod City
13 – Cebu City - Provinces of Cebu and Bohol
14 – Tacloban City - Provinces of Samar and Leyte
15 – Zamboanga City - Basilan, Sulu, Tawi-tawi, Pagadian, Zamboanga del Norte and Zamboanga del Sur, and Zamboanga City
16 – Cagayan de Oro City - Cagayan de Oro, Bukidnon, Marawi City, Iligan City, Gingoog City, Osamis Oriental and Osamis Occidental
17 – Butuan City - Agusan del Norte and Agusan del Sur, Surigao del Norte and Surigao del Sur
18 – Cotabato City - Province Cotabato, General Santos City
19 – Davao City - Davao del Norte, Davao del Sur, Davao Oriental and Davao City
The term “Metro Manila” when used in these Regulations shall refer to the Metro Manila revenue regions enumerated above.
(k) CLASSIFICATION – shall refer to the specific range of net retail prices of brands of alcohol or tobacco products upon which is levied, assessed and collected a rate of excise tax specified by the Act, inclusive of the tax rates imposed on certain brands under Annexes A, B, C and D of R.A. No. 8240, as implemented by Revenue Regulations No. 17-99;
(l) COMMERCIALLY PRODUCED AND MARKETED – shall refer to the production or importation and subsequent sale of a brand of alcohol or tobacco product, with or without profit, for every three-month period where volume is not less than twenty five percent (25%) of the quarterly average of the actual volume of importations or removals for each brand of alcohol or tobacco product during the immediately preceding seven (7) quarters;
Provided, That the quarterly average shall in no case be less than the volumes set forth in the table below; Provided further, That brands or variants failing to meet these requirements shall be treated as new brands and subject to validation and revalidation requirements of these Regulations:
| PRODUCT | MARKETED NATIONWIDE | MARKETED REGIONALLY (per region) |
| DISTILLED SPIRITS | 6,000 cases at 9 liters per case | 500 cases at 9 liters per case |
| FERMENTED LIQUORS | 50,000 liters | 4,167,liters |
| SPARKLING WINES | 3,600 cases at 9 liters per case | 300 cases at 9 liters per case |
| CIGARETTES PACKED BY MACHINE | 360 cases at 500 packs per case | 30 cases at 500 packs per case |
ILLUSTRATION: No. 3
Cigarette Brand “X” (marketed nationwide)
Total volume of removals during the last 7 quarters 105,000 cases
Quarterly average (105,000 cases ÷ 7) 15,000 cases
25% of quarterly average 3,750 cases
Minimum volume requirement per table 360 cases
Actual volume removed during the 4th quarter of 2005 1,950 cases
Since the actual volume of cigarette brand “X” in the 4th quarter of 2005 is less than 25% of the quarterly average volume but exceeds the minimum volume requirement as shown in the table above, the brand is not considered commercially produced and marketed.
(m) PRODUCT LAUNCH – shall refer to the introduction in the domestic market of a brand or variant of an alcohol or tobacco product, whether locally manufactured or imported, that satisfies the conditions for being commercially produced and marketed as prescribed in Section 2(l) of these Regulations.
(n) IMPORTATION – shall refer to the introduction of an alcohol or tobacco product from a foreign country into the Philippine customs’ territory or into a duly chartered economic and freeport zones and duty-free shops, whether for sale or not. It commences when the carrying vessel or aircraft enters the Philippine jurisdiction with the intention to unload or keep for storage therein such product. It is deemed terminated upon payment of duties, taxes and other charges due upon the articles, or secured to be paid, at a port of entry and the legal permit for withdrawal shall have been granted, or in case said articles are free of duties, taxes and other charges, until they have legally left the jurisdiction of the Bureau of Customs. For purposes of these Regulations, any alcohol or tobacco product entering the Philippines through the freeport and special economic zones shall be deemed to have entered the Philippine customs’ territory upon unloading thereof from the carrying vessel.
(o) TRANSSHIPMENT – shall refer to the transport or shipment of alcohol or tobacco products from a foreign port into any port(s) of the Philippines strictly for subsequent shipment to a foreign port or destination where the shipping manifest pertaining thereto specifically states that the destination therefor is for a foreign port without introducing the same into the Philippine customs territory;
(p) SUITABLY DENATURED – shall refer to the condition of ethyl alcohol when a material or substance, known as denaturant, has been added to the ethyl alcohol, in accordance with the approved formula of the BIR, to destroy the character of the same and making the added denaturant difficult to separate therefrom.
(q) DEALER IN DENATURED ALCOHOL – shall refer to a person, natural or juridical, who, other than as denaturer, sells or offers for sale or delivery to others, for himself or on commission, denatured alcohol in the original containers as bought or acquired by him without opening the same and breaking the internal revenue labels affixed thereto.
(r) MEDICINAL PREPARATION – shall refer to any compounded substance prepared and used as a remedy or cure for alleviating, palliating, or preventing some diseases or body disorders whether applied orally, externally or any other manner of application. For this purpose, any such substance using denatured alcohol as its chief ingredient shall fall within the purview of this definition.
(s) HEADS and TAILS – “Heads” shall refer to distillation fraction containing a high percentage of low boiling components such as aldehydes. In batch distillation, the first fraction constitutes the heads.
“Tails” shall refer to a distillation fraction containing components with higher boiling points. In batch distillation, the tails are obtained at the tail end of the process.
SEC. 3. REVISED RATES AND BASES OF THE SPECIFIC TAX. – There shall be levied, assessed and collected a specific tax on alcohol or tobacco products, in accordance with the following schedule:
| PRODUCT | EFFECTIVE | EFFECTIVE | EFFECTIVE | EFFECTIVE |
| A. ALCOHOL PRODUCTS | ||||
| (1) Distilled Spirits | Per proof | Per proof | Per proof | Per proof |
| (a) If produced from the sap of | P 11.65 | P 12.58 | P 13.59 | P 14.68 |
| (b) If produced from raw | P126.00 | P 136.08 | P 146.97 | P 158.73 |
| (2) Two Hundred and Fifty | P252.00 | P 272.16 | P 293.93 | P 317.44 |
| (3) More than Six Hundred | P504.00 | P 544.32 | P 587.87 | P 634.90 |
| (2) Wines | Per liter |
| Per liter |
|
| (a) Sparkling wines/champagnes, | P145.60 | P 157.25 | P 169.83 | P 183.42 |
| (2) More than Five Hundred | P436.80 | P 471.74 | P 509.48 | P 550.24 |
| (b) Still wines containing | P17.47 | P 18.87 | P 20.38 | P 22.01 |
| (c) Still wines containing more | P 34.94 | P 37.74 | P 40.76 | P 44.02 |
| (d) Fortified wines containing | Depending | Depending | Depending | Depending |
| (3) Fermented liquors, where | Per liter | Per liter | Per liter | Per liter |
| (a) Less than Fourteen | P 8.27 | P 8.93 | P 9.64 | P 10.41 |
| (b) Fourteen Pesos and | P12.30 | P 13.28 | P 14.34 | P 15.49 |
| (c) More than Twenty-two |
|
|
|
|
| Fermented liquors brewed and | P16.33 | P 17.64 |
| P 20.57 |
| B. TOBACCO PRODUCTS | ||||
| (1) Tobacco Products | Per k.g. | Per k.g. | Per k.g. | Per k.g. |
| (a) Tobacco twisted by hand or | P 1.00 | P 1.06 | P 1.12 | P 1.19 |
| (b) Tobacco prepared or | P 1.00 | P 1.06 | P 1.12 | P 1.19 |
| (c) Fine-cut shorts and refuse, | P 1.00 | P 1.06 | P 1.12 | P 1.19 |
| (2) Chewing tobacco, unsuitable in | P0.79 | P 0.84 | P 0.89 | P 0.94 |
| (3) Cigars, where the net retail price | Ten Percent | Ten Percent | Ten Percent | Ten Percent |
| (b) More than Five Hundred | Fifty Pesos | Fifty Pesos | Fifty Pesos | Fifty Pesos |
| (4) Cigarettes packed by hand | Per pack | Per pack | Per pack | Per pack |
| (5) Cigarettes packed by machine, | P2.00 | P 2.23 | P 2.47 | P 2.72 |
| (b) Five Pesos (P5.00) but does | P6.35 | P 6.74 | P 7.14 | P 7.56 |
| (c) More than Six Pesos and | P10.35 | P 10.88 | P 11.43 | P 12.00 |
| (d) More than Ten Pesos | P25.00 | P 26.06 | P 27.16 | P 28.30 |
ILLUSTRATION:
No. 4 - Computation of ad valorem tax due on cigars
Facts: Cost to manufacture per box of 25 cigars
(excluding cost of wooden box) P 1,000
Selling and administrative expenses per box 500
Cost of wooden box 2,500
Retail selling price per box of cigar,
net of VAT and excise tax 5,000
Question 1: How much is the taxable base?
Answer : The taxable base is P200 per cigar (P5,000/25 cigars)
Question 2: Is the cost of wooden box deductible from the taxable base considering that it is not a tobacco product?
Answer : No, the cost of the wooden box is not deductible because it is considered as the primary container of the product and the cigars could not be sold in a marketable condition without the said container.
SEC. 4. PROHIBITION AGAINST RECLASSIFICATION OF CERTAIN BRANDS OF ALCOHOL AND TOBACCO PRODUCTS. – The tax classification of the following brands of alcohol and tobacco products shall remain in force until revised by Congress:
(a) Brands enumerated in Annexes “A”, “B”, “C” and “D” of R. A. No. 8240;
(b) Brands listed in RR Nos. 1-97 and 2-97; and
(c) New brands introduced in the domestic market between January 1, 1997 and December 31, 2003.
With respect to any of the brands listed in Annexes “A”, “B”, “C” and “D” of R.A. No. 8240, the owner of the brand may file with the BIR a notarized request for the delisting thereof from the said Annexes. The filing of such request shall be deemed a waiver of the statutory protection against reclassification of such brand; Provided, further, that in the event that the same brand shall be manufactured or imported by another entity subsequent to the filing of such request, such brand shall be considered a new brand subject to the prohibition on downward reclassification prescribed under Section 5 of these Regulations.
ILLUSTRATIONS:
No. 5 - FGH Company, a cigarette manufacturer, owns the brand “Perfect 10” which was registered on October 1, 1996 and included among the brands listed in annexes of RA No. 8240. The said brand was produced and marketed from November 1996 until December 2000. On January 5, 2005, the company reintroduced the said brand in the
market.
Question: What will be the classification of the brand when it was re-introduced in the market on January 5, 2005?
Answer: Upon re-introduction of “Perfect 10” in the market on January 5, 2005, it will be classified as an existing brand because it is listed in the annexes of RA No. 8240. Accordingly, the said brand will enjoy the legislative protection from tax reclassification.
No. 6 - Brand “Gemini” is a locally manufactured beer listed in RR No. 2-97 falling under the low-priced tax bracket. It is not included in the list of brands in Annex “C” of R.A. No. 8240. The sand brand is no longer sold in the market since December 1996. On June 8, 2005, CPI Corporation, the manufacturer of “Gemini”, removed from its place of production a number of cases of said brand for sale to the public. Upon its re-introduction in the market, the said brand of beer will be sold at a net retail price of P16.00 per liter.
Question: Will the said brand enjoy the benefits accorded to existing brands with respect to the prohibition against reclassification?
Answer: Yes, Gemini beer, being listed in RR No. 2-97 and considered an existing brand, will still enjoy the legislative protection from tax reclassification.
SEC. 5. DOWNWARD RECLASSIFICATION OF A BRAND OF ALCOHOL OR TOBACCO PRODUCT. - Any downward reclassification of a brand of alcohol or tobacco product that is duly registered with the BIR, on or after January 1, 2005, which will reduce the tax imposed herein, or the payment thereof, shall be prohibited. The prohibition shall also apply to a brand enumerated in Annexes “A”, “B”, “C” and “D” of R.A. No. 8240 and RR Nos. 1-97 and 2-97 with tax rates imposed other than the regular tax rates prescribed in Section 3 hereof, including any other brand of alcohol or tobacco product that was introduced before the date of effectivity of the Act.
ILLUSTRATIONS:
No. 7 Assuming that “Gemini” is classified in RR No. 2-97 as a medium-priced brand, with the actual specific tax rate of P12.50 per liter instead of P10.25 per liter.
Question: What will be the applicable excise tax rate once the brand is reintroduced on June 8, 2005 if the current net retail price of “Gemini” is P14.00 per liter?
Answer: Because of the prohibition on the reduction of tax payments per brand, “Gemini” shall still pay the excise tax of P12.50 per liter instead of excise tax of P8.27 per liter imposed on low-priced brand once it is reintroduced in the market in June 2005, subject to the validation and revalidation requirements.
No. 8 - “Congress”, an imported cigarette brand, is registered with the BIR and sold within the customs territory under the premium-priced tax category with a tax rate of P25.00 per pack. In 2005, OMP, Inc., a local cigarette manufacturer, intends to produce the said brand locally. If it will be introduced in the market, its suggested net retail price will be P9.00 per pack with a tax rate of P10.35 per pack.
Question: What will be the applicable tax rate once the said brand is locally produced and marketed by OMP, Inc.?
Answer: Since “Congress” is already registered with the BIR under the premium-priced tax category, the tax rate of P25.00 per pack shall be applied because of the prohibition against downward reclassification of the present categories of brands.
No. 9 - PQS, Inc., a cigar manufacturer, will remove and sell 500 pieces of its cigar brand “Capre” on January 20, 2005. The cigars will be sold at retail, net of VAT and excise tax, at P5.00 per piece.
Question: What is the applicable excise tax rate on PQS, Inc.’s removal of “Capre” on January 20, 2005?
Answer: Due to the prohibition on downward reclassification, PQS, Inc. should apply the tax rate of P1.12 per cigar imposed under R.A. 8240 on its removal of “Capre” instead of the resulting ad valorem tax due per cigar of P0.50 (10% of the net retail price of P5.00) imposed under the Act.
SEC. 6. TAX CLASSIFICATION OF A NEW BRAND, OR A VARIANT OF A BRAND, THAT WAS INTRODUCED BETWEEN JANUARY 1, 2004 AND DECEMBER 31, 2004. – A variant of an existing brand that was introduced between January 1, 2004 and December 31, 2004 shall be classified under the highest tax classification for that brand pursuant to the provisions of R.A. No. 8240.
On the other hand, a new brand, as well as, a variant of a new brand, that is introduced before the effectivity of the Act shall be classified according to its current net retail price determined in the same manner as that for a new brand: Provided, That the tax classification thereof shall not be lower than the highest tax classification for such new brand or any existing variant thereof: Provided, further, That such brand or variant shall not be subject to the minimum volume requirements for commercial production and marketing prescribed under Section 2 (l) of these Regulations: Provided, finally, That the same shall still be subject to the validation and revalidation requirements under Sections 25 and 8 hereof.
SEC. 7. TAX CLASSIFICATION OF A BRAND OR VARIANT OF AN ALCOHOL OR TOBACCO PRODUCT INTRODUCED BEGINNING JANUARY 1, 2005 . – A new brand, a variant of an existing brand and a variant of a new brand of alcohol or tobacco product that is introduced in the domestic market beginning January 1, 2005 shall be initially classified according to its suggested net retail price as declared in the manufacturer’s or importer’s sworn statement prescribed by these Regulations: Provided, That the classification of a variant of an existing brand and a variant of a new brand shall not, in any case, be lower than the highest tax classification for that brand; Provided, further, That such brand or variant must be commercially produced and marketed; otherwise, the same is subject to the validation and revalidation requirements of these Regulations.
SEC. 8. VALIDATION AND REVALIDATION REQUIREMENTS FOR PURPOSES OF DETERMINING THE TAX CLASSIFICATION OF AN ALCOHOL OR TOBACCO PRODUCT. – Within forty five (45) days immediately after the end of three (3) months from the product launch, the BIR or the NSO, when deputized by the BIR for the purpose, shall conduct a price survey to validate the suggested net retail price of the new brand, variant of existing brand, or variant of new brand, as declared in the manufacturer’s or importer’s sworn statement, against the surveyed net retail price. Based on the results of the price survey, the BIR shall determine the correct tax bracket to which such brand of alcohol or tobacco product shall be classified.
Within forty five (45) days immediately after the end of eighteen (18) months from such initial validation, the BIR or the NSO, when deputized by the BIR for the purpose, shall conduct another price survey to revalidate the net retail price against the surveyed net retail price as of the time of revalidation in order to determine the proper tax bracket to which such brand shall be classified: Provided, That the minimum requirements on ‘commercial production and marketing’ of the brand have been continuously satisfied during the entire validation period; Provided, further, that another revalidation shall be conducted in the event that there is willful understatement of the suggested net retail price as provided under Section 9 of these Regulations.
In the event the BIR or NSO, as the case maybe, fails to conduct the initial validation at the end of three (3) months after the product launch of the new brand, variant of existing brand and variant of new brand, the proper initial tax classification of such brand shall be based on the suggested net retail price as declared in the manufacturer’s or importer’s sworn statement.
On the other hand, in case the BIR or the NSO, as the case may be, fails to conduct the prescribed revalidation after the end of eighteen (18) months from the date of initial validation or from the time the herein prescribed minimum volume requirements for commercial production and marketing of brands has been continuously satisfied, whichever comes later, the proper tax classification for such brand based on the net retail price declared in the manufacturer’s or importer’s sworn statement shall remain.
However, the foregoing rules on validation and revalidation shall not apply if, for meritorious reasons, the BIR is prevented from conducting such validation or revalidation. Meritorious reasons shall include force majeure, court injunctions or any other events beyond the control of the BIR. Accordingly, the BIR shall, upon the cessation or lifting of such reasons or grounds, conduct the required validation or revalidation.
The following rules shall govern the implementation of the foregoing validation and revalidation requirements:
(a) The validation and revalidation of a brand of alcohol or tobacco product shall be conducted according to such minimum number of major supermarkets - in Metro Manila, if such brand is marketed nationwide, or in regions outside Metro Manila, if such brand is marketed within such regions - prescribed as follows:
| PRODUCT | For Brands Marketed Nationwide | For Brands Marketed Outside Metro Manila Only |
| (1) Distilled Spirits and Sparkling Wines | At least ten (10) major supermarkets - in Metro Manila pursuant to Section 2(j) hereof | At least five (5) major supermarkets in the region |
| (2) Fermented Liquors, Cigars, Cigarettes Packed by Machine | At least twenty (20) major supermarkets in Metro Manila pursuant to Section 2(j) hereof | At least five (5) major supermarkets in the region |
In case the said prescribed minimum number of major supermarkets cannot be satisfied, the conduct of validation and revalidation of such brand of alcohol and tobacco product may be made on retail outlets. For this purpose, the manufacturer’s or importer’s sworn statement prescribed by these Regulations shall clearly indicate if such brand shall be marketed nationwide, or if it shall be marketed only in specific region(s). In both cases, the specific name(s) of the region(s) shall likewise be indicated: Provided, however, That the information in the sworn statement shall be considered confidential subject to the provisions of Sec. 270 of the NIRC of 1997, as amended.
(b) The proper tax classification of a new brand, variant of existing brand, or variant of a new brand of alcohol or tobacco product that is marketed only within a specific region, as finally determined by the BIR, shall only be valid within the said region. In case such brand will be marketed simultaneously in more than one region, the proper tax classification shall be determined based on the highest regional net retail price thereof.
In case such brand has not yet been revalidated by the BIR but has been marketed subsequently in another region/other regions with a suggested net retail price falling under a different tax classification, the tax classification of such brand shall be based on the net retail price in the initial regional launch/initially validated net retail price, or the suggested net retail price of the brand in the current launch, whichever is higher: Provided, further, That in case the same brand has been marketed nationwide as defined in these Regulations, and its tax classification has already been revalidated by the BIR, the subsequent introduction thereof to other region(s) shall not give rise to the conduct of another price validation notwithstanding that the net retail price of the said brand, upon such introduction, will fall to a higher tax classification.
However, in case a brand was initially introduced in one region and the tax classification thereof has been revalidated by the BIR, the subsequent introduction thereof in other regions either in simultaneous or successive manner shall not prevent the BIR from conducting the validation and/or revalidation for every introduction of the same brand to another region/other regions. The proper tax classification of such regional brand shall be considered revalidated only if the same has been launched in at least eight (8) revenue regions outside Metro Manila. Any revenue region in Metro Manila where a regional brand is to be introduced shall be considered as one region for purposes of determining the proper tax classification of such regional brand.
(c) In case a new brand, variant of an existing brand, or variant of a new brand of alcohol or tobacco product which is initially marketed only in selected region(s) shall be subsequently launched nationwide, the provisions on the tax treatment for the subsequent regional launching as prescribed in the immediately preceding paragraphs shall apply.
(d) In case that, as a result of the initial validation, the tax classification is higher than that declared in and paid under the manufacturer’s or importer’s sworn statement, the deficiency in the excise tax and interest, reckoned from the initial date of removals of the new brand, variant of the existing brand, or variant of the new brand shall be assessed and paid, upon demand, by the manufacturer or importer. With respect to the resulting variance in the tax classification between the revalidation and the initial validation, the deficiency in excise tax plus interest shall be paid, upon demand, by the manufacturer or importer, reckoned from the date of the initial removal of such brand over which the lower tax classification has been imposed by the initial validation. In case the tax classification of the new brand, variant of the existing brand, or variant of the new brand of alcohol or tobacco product based on the suggested net retail price as declared in the manufacturer’s or importer’s sworn statement, and the results of the price surveys during the initial and revalidation are different, the tax rate under the highest tax classification shall be applied, for purposes of determining the proper tax classification of such brand.
(e) Changes in the net retail price of the brand from the time of its initial launch up to the revalidation shall be monitored by the BIR. For purposes of determining the proper tax classification of the brand, the BIR shall adopt the highest net retail price thereof.
(f) Prior to each and every regional launching of a brand, a written notice therefor shall be submitted to the BIR, together with the sworn statement prescribed by these Regulations. In case of failure to submit the same, the running of the prescribed periods for initial validation and revalidation shall not commence.
The validation and revalidation shall be conducted by the duly authorized representatives of the Commissioner of Internal Revenue, in coordination, as may be necessary, with the duly authorized representatives of the Revenue Regional Offices having jurisdiction over the major supermarkets or retail outlets.
SEC. 9. WILLFUL UNDERSTATEMENT OF SUGGESTED NET RETAIL PRICE. – In case the suggested net retail price of the brand as declared in the manufacturer’s or importer’s sworn statement is understated by at least fifteen percent (15%) of the actual net retail price, the same shall be deemed a prima facie proof of willful intent to evade payment of the correct excise tax. Failure on the part of the manufacturer or importer to provide convincing evidence that there is no willful intent to understate the suggested net retail price of the brand shall render the manufacturer or importer liable for additional excise tax equivalent to the tax due and difference between the understated suggested net retail price and the actual net retail price.
ILLUSTRATION:
No. 10 – FEL Corp., a cigarette manufacturer, was issued a registration permit for its new product, “Mirage”, wherein the tax rate to be imposed is P2.00 per pack based on the Suggested Net Retail Price (SNRP), excluding VAT and excise, of P 4.35 per pack as declared in its manufacturer’s sworn statement. Before the end of three months from the time of its initial removal, the BIR conducted a price survey and found out that the Actual Net Retail Price (ANRP), excluding VAT and excise tax is actually P 5.25 subject to the higher excise tax rate of P 6.35 per pack. The total volume removed by FEL Corp. on the product is 10,000 packs from the time of its removal up to time of its last removal covered by the validation. Compute the total deficiency excise tax and penalties of FEL Corp., if there are any.
I. If FEL Corp. failed to prove willful intent to understate the suggested net retail price
Step 1. Determine whether or not the understatement of the SNRP is equal to or more than 15% of the ANRP SNRP per Sworn Statement P 4.35 ANRP per Validation 5.25 Difference P 0.90 Percentage of understatement [(P0.90 / P4.35) x 100%] 21% Since the understatement of 21% is more than 15%, FEL Corp is, therefore, liable to the additional penalty for willful understatement of suggested net retail price.
Step 2. Compute the deficiency excise and penalties
Tax rate per ANRP P 6.35
Add: Differential Tax [P6.35-P2.00] 4.35
Total tax due per pack P 10.70
Multiplied by volume removed 10,000
Deficiency tax due P 107,000
Add: Surcharge [50% of P107,000] 53,500
Total basic excise tax deficiency and surcharge P 160,500
Add: 20% Interest [P160,500 x 20% x 3/12] 8,025
Total deficiency excise tax and penalties P 168,525
Step 3. Compute the additional penalty to FEL Corp. as a juridical person
Total deficiency excise tax and penalties P 168,525
Additional penalty as a juridical entity [P168,525 x 3] P 505,575
Step 4. Compute the total amount due from FEL Corp.
Total deficiency excise tax and penalties P 168,525
Additional penalty as a juridical entity [P168,000 x 3] 505,575
Total Amount Due P 674,100
II. If FEL Corp. satisfactorily proved that there is no willful intent to understate the suggested net retail price
Step 1. Compute deficiency tax and interest
Differential Tax [P6.35-P2.00] P 4.35
Multiply volume of removals 10,000
Basic deficiency excise tax due P 43,500.00
Add: 20% Interest [P160,500 x 20% x 3/12] 5,437.50
Total deficiency excise tax due P 48,937.50
Step 2. Compute the additional penalty to FEL Corp. as a juridical person
Total deficiency excise tax due P 48,937.50
Additional penalty as a juridical entity [P48,937.50 x 3] P 146,812.50
Step 3. Compute the total amount due from FEL Corp.
Total deficiency excise tax due P 48,937.50
Additional penalty as a juridical entity 146,812.50
Total Amount Due P195,750.00
SEC. 10. SUBMISSION OF SWORN STATEMENT OF VOLUME OF SALES. – Manufacturers and importers of alcohol or tobacco products shall prepare a monthly sworn statement of the volume and amount of sales per brand, including the name, address and Tax Identification Number (TIN) of customer(s) per brand. In case of absence of the customer’s TIN, the words “NO TIN” shall be clearly indicated. The said monthly sworn statement shall be submitted to the LT Programs Divisions (LTPD), BIR National Office, Diliman, Quezon City, for excise taxpayers duly registered as Large Taxpayers, or to the BIR Office where the concerned manufacturer or importer is registered or required to be registered as an excise taxpayer, within twenty five (25) days immediately after the end of each taxable quarter, whether fiscal or calendar. In the case of transshipment, the owner of the goods, the transshipment operator, or their duly authorized representative shall likewise prepare and submit within the same prescribed period, a sworn statement containing information on the inbound and outbound shipments of alcohol or tobacco products such as, but not limited to, quantity and value for each brand, the names and addresses of the consignors and consignees, the ports of origin and destination, and transshipment ports in the Philippines.
SEC. 11. TAX-EXEMPT REMOVAL OF PARTIALLY MANUFACTURED LEAF TOBACCO AND LEAF TOBACCO WASTES. – Stemmed leaf tobacco, leaf tobacco prepared or partially prepared with or without the use of any machine or instrument or without being pressed or sweetened, fine cut shorts and refuse, scraps, clippings, cuttings, stems, midribs, and sweepings of tobacco resulting from the handling or stripping of whole leaf tobacco, shall be transferred, disposed of, or otherwise sold, without any prepayment of the excise tax: Provided, That the same are to be directly exported by the owner thereof or to be used by the transferee or buyer as raw materials in the manufacture of cigars, cigarettes or other excisable tobacco products on which the excise tax will eventually be paid on the finished product. For this purpose, the importation of the said partially manufactured leaf tobacco and leaf tobacco wastes to be used in the manufacture of excisable tobacco products shall, likewise, be exempt from the imposition of excise tax: Provided, however, That in case the partially manufactured leaf tobacco or leaf tobacco waste has been sold, transferred or disposed of without the prepayment of excise tax and subsequently used by the transferee or buyer in the manufacture of excisable tobacco products which was eventually exported, the partially manufactured leaf tobacco or leaf tobacco wastes actually used in the manufacture of the exported tobacco products shall be subject to excise tax to be paid by the manufacturer on or before removal from the place of production.
With respect to the removals of tobacco wastes attributable to the tax-exempt partially manufactured leaf tobacco actually used in the manufacture of exported tobacco products, the said tobacco wastes shall be subject to excise tax, regardless of whether or not the same shall be used for industrial or agricultural purposes.
For this purpose, the bond previously posted by the manufacturer to guarantee payment of its excise tax liabilities shall be required to be adjusted to such amount which shall include the total amount of excise tax due on estimated annual volume of partially manufactured leaf tobacco actually used in the production of tobacco products intended for export and the estimated volume of tobacco wastes attributable to the tax-exempt partially manufactured leaf tobacco actually used in the manufacture of tobacco products.
In case of exportation of partially manufactured leaf tobacco and leaf tobacco wastes, delivery of partially manufactured leaf tobacco by a cigar/cigarette manufacturer to another cigar/cigarette manufacturer, and removals of tobacco wastes without residual value arising from the production of excisable tobacco products, a prior permit for such transactions shall be secured from the BIR Office where the owner of the said partially manufactured leaf tobacco and leaf tobacco wastes is registered or required to be registered as an excise taxpayer. In the event that the owner fails to submit the necessary proof of exportation or transfer within thirty (30) days from the date of actual removal from its place of production/warehouse, the products removed shall be subject to the corresponding excise tax including penalties. With respect to the sale or transfer of such products to another manufacturer of excisable tobacco products, the transferee or buyer must be a valid holder of a permit to manufacture cigars, cigarettes or other excisable tobacco products duly issued by the BIR.
Accordingly, the sale, transfer or disposition of such products without the prepayment of excise tax thereon to another who is not a holder of a valid permit to manufacture cigars, cigarettes or other excisable tobacco products, or who is a dealer-trader, whether or not a holder of a valid permit to operate as a dealer or trader of such tobacco products, shall not be allowed. The BIR Office where the said transferee or buyer is registered or required to be registered as an excise taxpayer shall ensure that the products delivered are actually used as raw materials in the production of excisable tobacco products. In case the said tax-exempt products are not used in production but are, instead, sold, transferred or disposed of in any manner other than as raw materials in the production of its own excisable tobacco products without the prescribed permits from the BIR, the excise tax that is otherwise due thereon shall be paid by the said transferee or buyer before removal thereof from its place of production or warehouse, inclusive of all the applicable penalties.
SEC. 12. IMPORTATION OF AN ALCOHOL OR TOBACCO PRODUCT BY DUTY-FREE SHOPS, OR INTO ECONOMIC ZONES AND FREEPORT ZONES. – The provision of any special or general law to the contrary notwithstanding, the importation of alcohol or tobacco products, even if destined for tax and duty-free shops, shall be subject to all applicable taxes, duties, charges, including excise taxes thereon. Likewise, the importation thereof directly into the following chartered or legislated freeports shall be subject to such duties and taxes:
(a) Subic Special Economic and Freeport Zone, R.A. No. 7227;
(b) Cagayan Special Economic Zone and Freeport, R.A. No. 7922;
(c) Zamboanga City Special Economic Zone, R.A. No.7903; and
(d) Such other freeports as may hereafter be established or created by law.
However, the importation of these excisable products made directly by a governmentowned and operated duty-free shop, like the Duty-Free Philippines (DFP) shall be exempt from all applicable duties but shall be subject to excise and value-added taxes. For excise tax purposes, the owner or importer, including DFP, of alcohol or tobacco products that are to be imported in commercial quantity and intended to be sold in the domestic market or to be subsequently re-exported, shall be subject to the regular requirements of registration. In addition, an application for Authority to Release Imported Goods (ATRIG), for each and every importation of such products, shall be secured from the BIR Office where he is registered or required to be registered as an excise taxpayer.
All brands of alcohol and tobacco products, whether or not enumerated in the annexes of R.A. No. 8240 and RR Nos. 1-97, 2-97, 22-2003 and 23-2003 actually imported upon the effectivity of the Act by registered-enterprises and/or locators within the freeport zones and by the DFP, shall be treated as new brands subject to the registration, validation and revalidation requirements prescribed by these Regulations. On the other hand, in case of brands imported by the said enterprises/locators in the freeport zones and by the DFP whose proper tax classifications are determined by the BIR but the same shall be subsequently imported by another importer or locally manufactured, such subsequent importation/manufacture of the same brands shall, likewise, be treated as a new brand;
Provided, That the tax classification thereof shall not be lower than that determined for the introduction of the same brand within the freeport zones or DFP.
SEC. 13. SALE/IMPORTATION OF AN ALCOHOL OR TOBACCO PRODUCT TO/BY INTERNATIONAL CARRIERS. – An alcohol or tobacco product that is removed from the place of production for delivery to, or directly imported by, international airlines or vessels shall be subject to the payment of excise tax. In case there is express provision under the charter of the international airline/vessel, or under any international treaties or agreements which the Philippines is a signatory, that exempts international airlines or vessels from excise tax on alcohol or tobacco products, a claim for tax refund or credit shall be filed by the concerned international airlines or vessels with the appropriate BIR Office.
SEC. 14. TAX-EXEMPT REMOVAL OF ALCOHOL FOR RECTIFICATION PURPOSES. – Distilled spirits such as, but not limited to, ethyl alcohol, may be removed from the place of production for purposes of rectification by another establishment without prepayment of the specific tax. For this purpose, the distiller and the rectifier shall file separately an application for a permit to remove tax-exempt alcohol and an application for a permit to purchase tax-exempt alcohol, respectively, with the BIR Offices concerned where the distiller and the rectifier are registered or required to be registered as excise taxpayers. A joint bond executed by the distiller and the rectifier shall be filed together with their respective applications for permit to remove and purchase tax-exempt alcohol, to guarantee the payment of the excise tax due on such removal of conditionally tax-exempt alcohol.
The amount of the joint bond shall be based on the excise tax due on the estimated total annual volume of alcohol to be delivered by the distiller to the rectifier, or the excise tax due on the maximum volume capacity of registered under-bond tanks, whichever is lower. In case the amount of the joint bond is no longer sufficient to cover the total estimated excise tax due on the subsequent conditionally tax-exempt removals until the expiration of the joint bond, the amount of the joint bond shall be revised accordingly. The revised joint bond shall be submitted immediately after determination of the estimated excise tax otherwise due up to the validity period of the submitted joint bond. No subsequent tax-exempt removal shall be allowed unless the revised joint bond shall have been submitted by the manufacturer and the rectifier.
For purposes of this section, the term “rectification” shall refer to the process of refining, purifying or enhancing the quality of ethyl alcohol only by distillation.
Other processes intended to improve or enhance the quality of alcohol such as, but not limited to, aging, purification, filtration, carbon-treatments, etc., without distillation undertaken by the rectifier or rectifier-compounder itself, are deemed excluded under the term rectification as defined herein. Hence, deliveries of under-bond alcohol from distilleries to any rectifier or rectifier/compounder employing processes not falling squarely under the definition of rectification shall not be allowed.
Any allowance for losses or actual losses incurred, whether or not due to negligence, in-transit, handling/storage or during the rectification process shall not be allowed or granted. The excise tax due on losses shall be paid by the rectifier on or before the eighth (8th) day of the month immediately following the month of operation.
Alcohol removed for purposes of rectification shall be delivered directly from the distillery to the place of production of the rectifier or rectifier-compounder, and shall only be stored at duly approved storage tanks dedicated for this purpose.
Under-bond removals of alcohol from the distillery plant to any storage facility outside the distillery premises, even if intended for subsequent delivery to the place of production of the rectifier, shall not be allowed. Commingling of tax-exempt and tax-paid alcohol on the same storage tank is, likewise, prohibited.
SEC. 15. IMPOSITION OF SPECIFIC TAX ON ALCOHOL OR TOBACCO PRODUCTS PRODUCED AND CONSUMED WITHIN THE PREMISES OF THE MANUFACTURER. – Alcohol or tobacco products that are produced or manufactured, whether or not the same have been bottled or packed, as the case may be, and are subsequently consumed within the place of production shall be subject to the payment of excise tax by the manufacturer. The corresponding volume in liters/proof liters or in packs, as the case may be, and the excise tax due thereon shall be declared in the excise tax returns and shall be paid, in the same manner as that prescribed for ordinary removals of excisable alcohol or tobacco products.
The Excise Tax Removal Declaration (ETRD) or any other form that may be prescribed by the BIR shall be issued by the duly authorized representative of the manufacturer duly attested to by the Revenue Officer assigned at the manufacturer’s premises.
Accordingly, the brand name and volume of alcohol or tobacco products consumed within the production premises shall be separately indicated in the prescribed Official Register Books (ORBs) of the manufacturer.
SEC. 16. PREPAYMENT OF SPECIFIC TAX ON IMPORTED ALCOHOL OR TOBACCO PRODUCTS. – The corresponding specific tax shall be assessed and collected by the BIR on any alcohol or tobacco product that is intended to be imported into the Philippines upon which revenue labels and/or strip stamps are requisitioned in advance by the importer from the BIR for subsequent affixture on the primary and secondary containers of the alcohol or tobacco products by the foreign supplier.
No application for the advanced requisition of revenue labels and/or strip stamps shall be processed and issued without the prepayment in full by the importer of the corresponding specific tax on the alcohol and tobacco products intended to be imported.
SEC. 17. MANNER OF PACKAGING OF CIGARETTES. – Cigarettes packed by hand shall only be packed in thirties (30s) while cigarettes packed by machine shall only be packed in twenties (20s). However, packaging combinations of hand-packed and machine-packed cigarettes that are wrapped, sealed or bound together by any type of packaging which would result in the containment of twenty (20) cigarette sticks or thirty (30) cigarette sticks, respectively, maybe allowed, subject to the approval of the Commissioner of Internal Revenue.
However, in case cigarettes in such packaging combinations are sold individually at retail, the aggregate retail prices thereof shall be used as basis in determining their proper tax classification.
SEC. 18. EXPORTATION OF ALCOHOL OR TOBACCO PRODUCTS. – Alcohol or tobacco products intended for exports may be removed from the place of production without the prepayment of excise tax, subject to the following terms and conditions:
(a) A permit shall be secured from the BIR Office where the manufacturer is registered or required to be registered as an excise taxpayer before the product is removed from the place of production;
(b) A surety bond has been posted to guarantee payment of excise tax which is otherwise due on such removal. For this purpose, the manufacturer-exporter may, at his option, post a either a continuing surety bond, or a performance surety bond for each and every export transaction. With respect to the performance surety bond, the amount of the exporter’s bond shall be equal to the amount of excise tax otherwise due on the actual volume or value of the alcohol or tobacco products to be exported. On the other hand, with respect to the continuing surety bond, the amount of the exporter’s bond shall be equivalent to the amount of excise tax otherwise due on the estimated annual volume or value of the said products to be exported, or to the amount of excise tax due on the unliquidated export shipments of such product, whichever is lower.
A revised surety bond shall be submitted to the appropriate BIR Office in case the exporter’s bond is no longer sufficient to cover the subsequent tax-exempt exportations. In case of failure to submit the said revised surety bond, no permit for tax-free importation shall be issued by the concerned BIR Office.
(c) The products removed from the place of production shall be directly transported, loaded aboard the international shipping vessel or carrier, and shipped directly to the foreign country of destination without returning to the Philippines;
(d) Proof of exportation such as, but not limited to, the documents enumerated below, shall be submitted within thirty (30) days from the date of actual removal from the place of production. However, the concerned BIR Office may, upon written request by the taxpayer-exporter, grant a period of extension for the submission of such documents for meritorious reasons.
i. Export Entry Declaration duly filed with the Bureau of Customs
ii. Commercial Invoice
iii. Packing list
iv. Bill of Lading
v. Cargo Manifest, if applicable
vi. Inward bank remittance in foreign currency acceptable to the Bangko Sentral ng Pilipinas
vii. Any document showing proof that the products exported have actually arrived and unloaded in the foreign port of destination (e.g., certificate of discharge, import entry declaration duly received by the foreign port of entry, etc.)
viii. Other necessary documents as may be reasonably required
(e) The prescribed phrase “FOR EXPORT ONLY” is printed on each label that is attached/affixed/ on the primary container (for alcohol products); on the label which serves as the primary container for cigarettes; on the “ring-label” for cigars; as well as on the secondary containers such as reams, cartons, cases, boxes, etc., in a recognizable and readable manner.
In case of failure to comply with the above terms and conditions, the removal of the product shall be subject to excise tax, inclusive of penalties. Further, no subsequent application for permit for tax-free importation shall be processed and granted unless all the aforementioned requirements have been fully complied with. ... (More) >>>
1 comment:
Informative and helpful article. I'll keep reading more. Appreciate it. But might be looking for SWEET Flavored Whole Leaf
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