Philippine Congress Investigates E-cigarette Brand for Tax Evasion

According to a report from Inquirer.net, the Philippine House of Representatives has demanded the Bureau of Internal Revenue (BIR) to verify the license and product specifications of an e-cigarette brand that is being investigated for allegedly evading billions of pesos in taxes. The committee has also issued another subpoena to e-cigarette product brand Flava and the local company DenKat Trading, believed to be involved in importing this brand.

Congressman Joey Sarte Salceda, who chairs the House Committee, has formally requested the Bureau of Internal Revenue (BIR) to send letters to the Food and Drug Administration (FDA) and the Department of Trade and Industry's Bureau of Product Standards (BPS) to verify Flava's product specifications. He also added that he has requested the BIR to examine the licenses posted on Flava's online store.

On November 28, the House Committee investigated the seizure of 1.4 million 10ml Flava disposable e-cigarettes at a warehouse in Valenzuela City on October 27. These e-cigarettes were found to lack the necessary documentation. According to Sarseda, it is suspected that Flava falsely labeled their products as traditional freebase e-cigarettes, which are taxed at a rate of 60 pesos per 10ml, rather than nicotine salts, which have a higher concentration and are taxed at a rate of 52 pesos per ml.

He pointed out that according to Article 263 of the National Internal Revenue Code, illicit transactions of variable products will face fines no less than ten times the value of the unpaid consumption tax. "The product in question, marketed as freebase nicotine, should be taxed at a rate of 60 pesos per 10 milliliters, but reports have shown that the product may have been misreported and should actually be taxed as nicotine salts, a more concentrated product with a tax rate of 52 pesos per milliliter," Salceda stated.

He added that Flava's marketing "implies that it is actually salt nicotine." According to the Vaporized Nicotine and Non-Nicotine Products Act (Republic Ordinance No. 11900), compared to freebase nicotine, salt nicotine has lower taxes because the latter is more concentrated and potent.

For a 10-milliliter equivalent, the main salt nicotine products in the market can provide 2,800 puffs. Flava markets claim to offer 6,000 to 10,000 puffs. Just based on this, one can imagine that the product is concentrated. This could potentially be a case of tax evasion amounting to 728 million pesos. If multiplied by 10, the final amount would reach 7.3 billion pesos (approximately 940 million yuan)," Salceda stated.

He also called on the Department of Finance and the BIR to come up with strategies to curb the illicit trade of e-cigarettes. "The purpose of this hearing is not just to prosecute one company, but to find ways to prevent the illegal trade of e-cigarettes, which would harm legitimate companies while allowing unregulated hazardous substances to exist in the market," said Salseda.