Congress approves vapor products taxes in the Philippines

Taxes on vapor products will soon be coming to the Philippines. Congress passed several amendments to the Internal Revenue Code which created new taxes on heated tobacco products and electronic cigarettes. President Rodrigo Duterte signed the bill containing the amendments which was published in the Official Gazette on 23 July 2019.

New tax categories

The legislation creates two new categories of products subject to excise tax in the Internal Revenue Code; heated tobacco products and vapor products. Heated tobacco products are defined in the Act as “tobacco products that may be consumed through heating tobacco, either electrically or through other means sufficiently to releases an aerosol that can be inhaled, without burning or any other combustion of the tobacco.”  

Vapor products are defined as “any liquid solution or gel which contains nicotine that transforms into an aerosol without combustion through the employment of a mechanical heating element, battery or circuit that can be used to heat such solution or gel.”

Tax rates

The law requires that heated tobacco products only be packed in twenties and other packaging combinations of not more than 20 units. In contrast to most markets which levy a specific tax on heated tobacco based on the weight of the tobacco mixture, the Philippine law assesses a tax of ten pesos (P10.00) on packs of twenty units or packaging combinations of no more than 20 units.

The rate of tax imposed will be increased by 5% each year starting on 1 January 2021 by means of revenue regulations issued by the Secretary of Finance.

For electronic cigarettes, taxes will be collected on individual cartridges, refills or other containers of liquid solutions or gel according to a tiered specific structure based on ranges of liquid volume contained.

On the first 10 milliliters of liquid or gel a tax of ten pesos will apply. Between 10.01 and 20.0 ml, twenty pesos in tax will be collected. For volumes in excess of 50ml a tax of fifty (P.50) pesos plus ten pesos for every additional 10 ml will apply.

As in the case of the heated tobacco tax a 5% increase will in the tax will be applied each year starting on 1 January 2021 pursuant to a revenue regulation issued by the Secretary of Finance.

The taxes go into effect on 1 January 2020.