BIR targets to cut gap in excise tax collection

MANILA, Philippines — The Bureau of Internal Revenue (BIR) is targeting to cut to at least 10 percent the collection shortfall from excise taxes, majority of which is due to the illicit trade of tobacco in the country.

BIR commissioner Romeo Lumagui said revenue losses remain huge and is one of the reasons why the agency is not attaining its collection target for excise products.

Currently, the BIR is suffering from as much as 20 percent in collection shortfall from excise taxes as of the first half of 2023.

“We are targeting to minimize that 20 percent within the year. I’m sure we will be able to cut that by more than half, that’s why we are aggressive in all our enforcement activities,” Lumagui told reporters.

“It’s not just on cigarettes. We also look into sugar sweetened beverages and vape products,” he said.

Excise tax is a levy on the production, sale or consumption of a commodity. Excisable products include alcohol, tobacco, petroleum and minerals, among others.

“We really want to achieve that we get rid of that shortfall and close that gap so we can reach our collection targets,” Lumagui said.

For one, illicit tobacco products are a major reason for the lower collection.

Lumagui noted that the BIR is seeing a decrease in volume on legitimate products due to illicit trade.

“But total consumption appears to be not (going down) that’s why we are looking into if it’s really declining or just transitioning to vape products,” he said.

Lumagui maintained that the BIR is having difficulty in going after illegal vape products given that it has become a backyard industry whose production can be done even at home.

Last May, the BIR increased the floor price for cigarettes, but lowered for vape products as the government took into account the latest market conditions.

Floor price is the minimum retail price set by the BIR taking into account the sum of the products’ excise tax, value added tax, and reasonable production cost.

For cigarettes, the new floor price for a pack is now at P114.60 from the previous P82.49.

For heated tobacco products, the floor price per pack has been reduced to P120.40 from the previous P140 for those with production cost of P75, excise tax of P32.50, and VAT of P12.90.

The BIR maintained that selling of tobacco products at a price lower than the combined excise taxes and VAT imposed under the law is prohibited.

The latest BIR circular also reiterated penalties for violators selling at lower prices including fines of P200,000 to P500,000 and imprisonment of up to six years.