Health and taxes

Geneva – Before we left Manila, President Rodrigo Duterte finally signed Republic Act (RA) 11467. The new law imposed higher excise taxes on “sin” products – wines and other alcoholic drinks and on the growing popular alternative tobacco products like vapes and electronic cigarettes, or e-cigarettes for short.

We arrived with several other editors of various national newspapers invited to a familiarization tour here of the premier facility owned and run by giant cigarette manufacturing company PMFTC Inc. The company was built from a partnership between American tobacco giant Philip Morris Inc. and Lucio Tan’s Fortune Tobacco Inc.

This partnership established them as the biggest cigarette maker in the Philippines since their 2010 business combination. Amid challenges of the intensified campaign against the hazards of heavy smoking of cigarettes – from causing lung cancer to other deadly respiratory diseases – the PMFTC has embraced a smoke-free future for the survival of their company’s business. This is not to mention the thousands of jobs, livelihood source of Filipino tobacco growers, and millions of tax revenues paid to the government. 

As part of this evolution the PMFTC joint venture is taking the shift to a new direction which involves helping people quit smoking traditional cigarettes. This shift in direction is where smokers are envisioned to eventually abandon the dirty and harmful effects of cigarette smoking habits. 

And instead shift to alternatives to replace cigarettes with smoke-free gadgets like the now growing popular use of e-cigarettes, vapes and other heated tobacco products. The PMFTC, in particular, is set to launch later this year iQOS as its flagship platform for heated tobacco product. Part of our media familiarization tour is in Lausanne where the Operations Center of the PMFTC is situated. 

We first went to see The Cube in Neuchatel, or the research and development (R&D) facility of Philip Morris where new innovative products of the PMFTC are being developed. We had an introduction and overview of the Harm Reduction developed as the so-called electronic nicotine delivery systems, or ENDS products. The newest products are Philip Morris’ cigarette alternatives such as e-cigarettes and iQOS, a sophisticated smokeless tobacco device. 

With added features of being supposedly less harmful to one’s health and smoke, iQOS and these other alternative smoking gadgets do not come cheap.

Hence, RA 11467 is projected to generate at least P47 billion additional government revenues to fill the funding gap for the Universal Health Care Program of the Duterte administration. RA 11467 also mandated certain regulations on e-cigarettes, vapes and other future alternative products on tobacco and cigarettes. 

RA 11467 had put ENDS under the regulatory power of the Food and Drugs Administration (FDA); set minimum age for use of vapes at 22 years old and banned flavored products while only allowing plain tobacco and menthol.

The law’s principal feature raised taxes on heated tobacco products by P25 in 2021; P27.50 in 2022; P30 in 2023; P32.50 in 2024 and by five percent every year thereafter. The tax for freebased nicotine base will increase to P45 in 2021; P50 in 2022; P55 in 2023, P60 in 2024, with five percent annual increases onwards.

The salt-based nicotine vape will be taxed slightly lower at P37 in 2021; P42 in 2022; P47 in 2023 and P52 in 2024, with five percent annual increases from 2025 and succeeding years.

Meanwhile, the House of Representatives started yesterday its full-blown inquiry into the reported rampant cases of smuggling of cigarette products and alleged manufacture of “fake” cigarettes. Under House Resolution (HR) No. 79, it called for an investigation into “fake” cigarettes, manufacture of illegal cigarettes, and use of “fake” tax stamps of the Bureau of Internal Revenue (BIR).

The latest cases involved the P1 billion worth of smuggled cigarettes from China that were interdicted by the Bureau of Customs in Nueva Ecija and another P880-million worth of these contrabands seized in Cagayan de Oro by the National Bureau of Investigation. There is also the reported escalation of “fake” cigarettes, or cigarette brands that were being marketed under false brands and cheaper precisely because these were untaxed as they bear “fake” BIR stamps.

The proliferation of these reported “fake” cigarettes and such brazen smuggling incidents thus raise more questions on the failure of these government agencies to stop these nefarious activities.

The 18th Congress is actually putting together HR 79 along with several other related House Resolutions in drafting a substitute bill based on a consolidation of the proposed amendments to the Customs Modernization and Tariff Act. This include HR 227 directing the conduct of an inquiry into the implementation of Section 150-B of the National Internal Revenue Code. 

Joint public hearings of House committees will also discuss HR 556 calling for an inquiry on the unabated smuggling of goods into the country by unscrupulous operators of customs bonded warehouses. It is unclear whether or not they will be amendatory to the new law RA 11467, or an entirely separate law altogether. 

The Philippine Statistics Authority (PSA) and the Department of Health (DOH) showed that only about 640,000 out of the country’s 15.9 million smokers have succeeded to quit smoking. This data was submitted to the 18th Congress to consider a proposed stand-alone law on ENDS products. There are at least 15 proposed measures referred for consideration in the public hearing of House bills seeking regulation of e-cigarettes and vapes.

The World Health Organization (WHO) recommends that countries should have regulatory measures against all types of e-cigarettes, citing “growing evidence” that it can also cause lung damage. In their report, the WHO maintains e-cigarettes “are harmful to health and, where they are not banned, they must be regulated.” 

For now it appears this policy position of the WHO is supported by the signing into law of RA 11467. The 74-year-old President Duterte whose personal health issues are related to his being a former heavy smoker apparently could not agree more. Thus, vapes and e-cigarettes remain covered by the President’s ban on smoking in public all over the Philippines.