New Rules for Imported Alcohol and Tobacco Products

A year ago, a new law governing alcohol and tobacco products was passed by the Philippine Congress. Republic Act No. 9334, en-titled “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 further clarify on 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 has now highlighted many of these seemingly unimportant provisions. Imported Tobacco and Alcohol Products. 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 The new law has now withdrawn such exemption.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 provides 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. Even importation of these products by a government-owned and operated duty-free shop, while still exempt from duties, shall now be subject to excise and value-added taxes. Non Payment of Taxes and Duties. Customs has very clear rules with regard to smuggling of dutiable articles, e.g., the non-payment of taxes and duties on imported articles. As a general rule, any article imported contrary to law shall be subject to forfeiture, and subsequently shall be sold under such restrictions as will ensure its legitimate use, or if the article is unfit for use or would be used for unlawful purposes, it shall be destroyed. With regard to the non payment of excise taxes on imported alcohol and tobacco products, RR 3-2006 provides that in case of violation of said regulation, the importer shall be fined treble the aggregate amount of deficiency taxes, surcharges and interest which may be assessed. Also, any person found liable for any of the acts or omission prohibited under said regulations shall be criminally liable and penalized under Section 254 (Attempt to Evade or Defeat Tax), NIRC. Under the present rules therefore, an importer found to have evaded the payment of taxes and duties on imported alcohol or tobacco products can be prosecuted administratively and criminally not only under existing customs rules but also under relevant internal revenue regulations. 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 likewise provides new procedures for transshipment of such goods. Under present rules, it is no longer enough that the shipment of alcohol or tobacco products from a foreign port into any port of the Philippines is bound for another foreign port or destination. Additional requirements now include the exportation of the cargo within 15 days from arrival and the posting of a guarantee equivalent to not less than the amount of internal revenues taxes and duties otherwise due from the shipment. The submission of complete documents showing that the shipment has arrived at the foreign port shall be used as basis for cancellation of the guarantee. Violation of Health Label Requirements. Imported tobacco products, if not destined for the Philippines, are most likely not labeled in accordance with existing rules and regulations. Unknown to many importers, a new law was also passed in 2003 governing the use, sale and advertisement of tobacco products. Otherwise known as the “Tobacco Regulation Act of 2003”, Republic Act No. 9211 provided new regulations with regard to the packaging, use, sale, distribution and advertisement of tobacco products. The same law created the Inter Agency Committee (IAC) – Tobacco, which was tasked to implement the law and issue the appropriate implementing rules. Under Memorandum Circular No. 1-2004 entitled “Rules and Regulation Implementing RA 9211, otherwise known as the Tobacco Regulation Act of 2003”, non compliance with the health warn-ing labels on packages of tobacco products intended for sale in the Philippines may result in fines from P100,000 to P400,000 and/or imprison-ment from one year to three years. Smuggling of Tobacco and Alcohol Products. Under present customs and internal revenue regulations, imported tobacco and alcohol products are highly regulated and are subject to duties, VAT and excise tax. Imported tobacco and alcohol products with unpaid duties and taxes may be considered as “contrabands” and persons found to have imported, distributed and/or sold such contrabands may be subject to administrative and criminal penalties. At present, both BIR and customs rules now have very stringent procedural rules governing the importation and sale of these products

The author is an international trade, indirect tax (customs) and supply chain expert. He is the Editorial Board Chairman of Asia Customs & Trade, an online portal on customs and trade developments affecting global trade and customs compliance in Asia. He was also Bureau of Customs Deputy Commissioner for Assessment and Operations Coordinating Group (2013-2016). For questions, please email at agatonuvero@yahoo.com and agatonuvero@customstrade.asia