IN a previous column (January 30, 2006, Port-Calls), we wrote about the new law passed last year governing alcohol and to-bacco products. The Bureau of Customs (BoC) has recently issued its guidelines to implement RA 9334 and the implementing rules issued by the Bureau of Internal Revenue (BIR), specifically RR 3-2006 and RMC 26-2006.
CMO 20-2006 was also issued to address the specific implementation and operational issues regarding importation of alcohol and tobacco products especially those bound for duty-free zones and those imported by international air carriers and vessels.
RA 9334 and BIR RR-2006. Republic Act No. 9334, entitled “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”, effectively amended the provisions of the National Internal Revenue Code (NIRC) pertaining to alcohol and tobacco products. To most people, RA 9334 was known for increasing the excise tax rates of alcohol and tobacco products. The increase in the excise tax rates resulted in higher retail prices for these products.
To clarify the provisions of RA 9334, the Bureau of Internal Revenue (BIR) recently issued Revenue Regulation No. 3-2006 “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”. Other than the increase in excise tax rates, there are many other provisions in the new law which now impact on how companies trade in alcohol and tobacco products. RR 3-2006 and CMO 20-2006 have now highlighted many of these seemingly unimportant provisions.
Tax and Duty on All Products. Under the CMO, importation into the duly chartered economic and free port zones and duty free shops shall be governed by the customs order and any alcohol or tobacco products entering through a free port and special economic zone shall be deemed to have entered Philippine customs territory “upon unloading thereof from the carrying vessel”.
Before the passage of RA 9334, imported tobacco or alcohol products bound for free trade or export processing zones were exempted from all kinds of duties and taxes. The new law and the CMO have now withdrawn such exemption. Specifically, Section 12 (Importation of an alcohol or tobacco product by Duty-Free Shops, or into Economic Zones and Freeport Zones) of RR 3-2006 expressly provide that importation of alcohol or tobacco products, even if destined for tax and duty-free shops or legislated free ports, shall be subject to all applicable taxes, duties, charges, including excise taxes thereon.
As provided in Section II.C of the CMO, importations of government-owned and operated duty-free shops, excise and value added taxes shall likewise be paid even if the exemption on customs duties remains.
Labels on Alcohol and Tobacco Products. Section II.C of the CMO expressly provides that appropriate phrases such as “For Domestic Sale Only”, “For Export Only”, “For Export to the Philippines: Tax and Duty Paid” and “Duty Free and Not for Resale” shall be prominently placed on the face of the label and all sides of secondary containers of the imported alcohol and tobacco products. Cigars and cigarettes, distilled spirits and wines and similar products sold in the domestic market or found within the premises of free trade zones or duty-free shops without the proper labels or markings shall be subject to seizure and forfeiture proceedings and the subsequent destruction of such imported articles.
Transshipment of Imported Products. In addition to the new rules governing importation of alcohol and tobacco products into export processing and free trade zones, RR 3-2006 and CMO 20-2006 likewise provide new procedures for transshipment of such goods. Under the CMO, alcohol or tobacco products intended for transshipment shall not be subject to the imposition and payment of duty, excise and value added taxes under the following conditions:
- Foreign port of destination clearly indicated in cargo manifest;
- Alcohol and tobacco shipment must remain at all times at port of arrival and must not be transferred/transported to any other port of entry;
- The products must be transported abroad within 15 days;
- If the products for transshipment are unloaded at the port of arrival prior to transport to the foreign port of destination, a guaranty (bond, letter of credit, bank guaranty or cash) must be posted in an amount equivalent to the duties and taxes otherwise due on the shipment; and
- Submission within 6 months of any document showing that the products have been transshipped.
Penalties for Non-Liquidation of Guaranty. With regard to the requirements for the cancellation or release of the guaranty, the last paragraph of Section II.D of the CMO provides the bond shall be liquidated by submission of proof of actual shipment of the alcohol or tobacco products. Non liquidation of the bond within the effective life of the guaranty (e.g. bank guaranty, surety bonds) shall be subject to sanctions and penalties as provided under related customs rules and regulations.