Flava Seizure: How Will Tightened E-cigarette Certification Procedures Impact the Philippine Market?

On the evening of February 29th local time, the Philippines Bureau of Customs Intelligence and Investigation raided three warehouses in Paranaque, Marilao, and Quezon City, seizing a shipment of e-cigarette products valued at 4 billion pesos (approximately 510 million RMB, 70 million USD) that were not registered in the Philippines and lacked proper authorization documents. Sources familiar with the situation told 2FIRSTS that the seized products, approximately 3 million sets in total, were from the well-known Philippine brand Flava.

During the procurement, the brand did not fully pay their Chinese suppliers, with most orders only paying half or less of the total amount, and some as low as 20%. As a result, the seizure has had a significant impact on some domestic e-cigarette manufacturers in China.

This is not the first time Flava has been investigated. In November 2023, Philippine regulatory authorities seized 1.4 million illegally imported e-cigarettes from the company, valued at approximately 1.43 billion pesos, with a taxable value of around 728 million pesos (approximately 93.24 million yuan, 13 million USD). Since then, Flava has been under investigation by tax authorities. On March 22, a source in the e-cigarette industry in the Philippines revealed that a warehouse belonging to local e-cigarette logistics company PDQ was sealed off by the government. The warehouse, located in Manila, measures over 4000 square meters.

2FIRSTS conducted a review of the recent incident with Flava and the latest developments in the Filipino market.

Establish E-cigarette Certification Program

According to sources familiar with the e-cigarette industry in the Philippines, a batch of e-cigarettes was burned in front of a government office building in Manila on February 29th. The source stated that following a series of events, the e-cigarette market in the Philippines is currently in extreme confusion. Some brands planning to enter the market are feeling uneasy and are seeking payment from distributors, only to be refused.

The regulation of e-cigarettes in the Philippines is being tightened. On February 7, a national newspaper, the Manila Standard, published an editorial calling for a reassessment and tightening of the country's e-cigarette laws.

The newspaper is controlled by the country's political family, the Romualdez family, through the current Speaker of the House of Representatives, Ferdinand Martin Gomez Romualdez. It has always been seen as the official mouthpiece of the government. Unsurprisingly, following this, reports from major local sources such as The Philippine Star have indicated that the Department of Trade and Industry (DTI) in the Philippines has recently been moving forward with establishing an e-cigarette certification program in the country to support the government's crackdown on illegal e-cigarette products.

As a result, the amendments to the "Republic Act 11900" or the "Vape Nicotine and Non-Nicotine Products Act" will come into effect in June 2024. From then on, all imported and manufactured vape nicotine, non-nicotine products, and new tobacco products must undergo mandatory certification process by the DTI before being distributed in the market.

The above-mentioned law was first implemented on July 25, 2022. However, in the two years since its enactment, the law has lowered the age restriction for such products from 21 to 18, lifted the ban on smoking and heating tobacco products in public places, and allowed for advertising of such products. This amendment will further strengthen the regulatory measures of the original law.

Increasing Tax Enforcement Actions

At the same time, the Philippine authorities are stepping up tax investigations on the country's e-cigarette industry, with Flava being the only company facing tax troubles.

After conducting a series of surprise inspections in November 2022, the Bureau of Internal Revenue (BIR) in the Philippines filed tax evasion complaints against sellers of the Tap Fog brand and four other e-cigarette traders in December 2022. They won the tax evasion case against the e-cigarette brand "Tap Fog" sellers on February 26, 2023, with an estimated civil liability amounting to approximately 1.2 billion pesos ($21.39 million).

After a successful court ruling, the Bureau of Internal Revenue (BIR) released a statement saying they are closely monitoring the e-cigarette industry and reminding e-cigarette retailers to comply with registration and tax requirements under the law. Director Romeo D. Lumagui Jr. pledged that the BIR will continue to take proactive measures against illegal transactions involving e-cigarettes and vaping products.

In December 2023, China exported approximately $32.91 million worth of e-cigarettes to the Philippines, showing a month-on-month increase of 25.16%. This indicates that the enthusiasm for entering the Philippines market is still strong. However, recent moves by the Filipino authorities have raised the cost of illegal operation on the ground, reminding industry players hoping to enter the Philippine market to enhance their compliance awareness.

2FIRSTS will continue to monitor regulatory developments in the Philippines market.