BIR issues new guidelines on how to determine floor price of popular tobacco products

The Bureau of Internal Revenue (BIR) has issued new guidelines on how to determine the floor price for cigarettes and heated/vapor tobacco products.

Revenue Regulations No. 7-2021 serves as the implementing rules and regulations (IRR) for Republic Act (RA) 11346 in which the excise taxes on so-called “sin” products such as tobacco and alcoholic beverages are increased.

Under the guidelines, the minimum price of cigarette and heated/vapor tobacco products will be computed by adding the total production cost of the cheapest brand per tobacco product, the excise tax, and the value-added tax (VAT).

The BIR determined the reference rates for taxation purposes in case there are no documents available for the actual price of the product.

For example, a floor price of ₱78.40 will be imposed for cigarettes with a production cost of ₱20, an excise tax of ₱50, and VAT of ₱8.40.

Heated tobacco products with a ₱20 production cost, ₱42 in excise tax, and ₱7.44 in VAT should have a minimum price of ₱69.44.

For heated/vapor products, the BIR said 0.7 milliliters (ml) pod of nicotine salts will have ₱125.44 as floor price this year given its ₱70 production cost, ₱42 in excise tax, and ₱13.44 in VAT. A nicotine salt of 2.5 ml will have ₱421.12 as a minimum price, while a 4-pod item has ₱2,195.20.

The floor price for a 10-ml tank of freebase nicotine with a production cost of ₱50 each, ₱50 in excise tax, and ₱12 in VAT was estimated at ₱112, while a larger tank with 25 ml has a ₱308 minimum price.

“The Excise Large Taxpayer Regulatory Division (ELTRD) shall establish a monthly data profile based on the required periodic manufacturer’s or importer’s sworn declaration for all brands per tobacco product category,” the BIR said.

Those caught selling tobacco and vapor products below the floor price will face penalties from ₱200,000 to ₱500,000 or 10 times the amount of excise tax and VAT due. Sanctions will also include 4-6 years of imprisonment.

The BIR also imposed inspection fees of 50 centavos per 1,000 pieces of cigars, 10 centavos per 1,000 sticks of cigarettes, and 10 centavos for 1,000 units of heated tobacco products. Furthermore, one centavo of inspection fee was set per ml of vapor product, two centavos per kilo of whole leaf tobacco, and three centavos per kilo of tobacco scraps.

To signify that excise taxes have been paid, the BIR said tax stamps will be marked on the packaging of these products.

Those who affix previously used tax stamps, erase cancellation marks, or make any alterations on the stamps will have to pay a fine of least ₱10 million up to ₱500 million and imprisonment of 5-8 years. Selling and using fake stamps will also face similar charges.

The IRR was signed by BIR Commissioner Caesar R. Dulay and Finance Secretary Carlos G. Dominguez III on May 18 and will take effect early next month.

The Department of Finance expects to collect ₱297.8 billion from “sin” taxes this year.

SOURCE: Business World