Excise Tax in the Philippines

Since businesses conduct sales for the benefit of gaining profit, it may sometimes disregard whether the products sold are considered harmful, undesirable, or unnecessary. Taxes imposed on these products are usually higher compared to other business tax rates such as Value Added Tax and Percentage tax.

What Is an Excise Tax?

An excise tax is a business tax imposed on specific goods or services on top of its purchase price. It is a tax on the production, sale or consumption of a commodity in a country. It applies on goods manufactured or produced in the Philippines or on goods imported intended for domestic sale or consumption or for any other disposition.

The imposition of excise tax has two main purpose:

Lessen consumption of certain commodities which are considered harmful

Products such as alcohol and tobacco are harmful to our health. Although the government cannot stop the production of these products, they can however, discourage the masses in patronizing these products by imposing high taxes that would increase the price of the product itself.

To raise revenue

One way of increasing revenue collection without imposing burden to the people is by implementing tax on unnecessary products. By doing this, only people who can afford luxury products shall be affected by the implementation of excise tax. The collection shall form part of the fund that the government uses for its projects.

Classification of Excise Tax

Specific – This is an excise tax imposed based on weight, volume, capacity or any other physical unit of measurement

To compute, determine the number of units or other measurements (produced) multiplied by the Specific Tax Rate (# of Units/measurements x Specific Tax Rate).

For example: An excise tax of ₱ 2.05 per kilogram on tobacco prepared by machine.

Ad-valorem – An excise tax based fixed percentage on selling price or other specified value of the goods

To compute, determine the number of units or other measurements (produced) multiplied by the Specific Tax Rate (# of Units/measurements x Specific Tax Rate).

Example: 20% ad-valorem tax on net retail price of cigar.

Items Subject for Excise Tax

Excise tax is imposed in addition to VAT or percentage tax on certain goods manufactured, produced or imported in the Philippines for domestic sale or consumption such as:

A. Sin Products

A sin tax is an excise tax specifically levied or imposed on certain products that is considered potentially harmful to consumers or the society such as the following namely:

• Alcohol

Distilled Spirits which is computed per “proof liter”.

It is the substance known as ethyl alcohol, ethanol or spirits of wine, including all dilutions, purifications and mixtures thereof, from whatever source, by whatever process produced, and shall include whisky, brandy, rum, gin and vodka, and other similar products or mixtures.   

A proof liter means a liter of proof spirits, which is liquor containing onehalf (½) of its volume of alcohol of a specific gravity of 0.7939 at 15°C.

An Ad Valorem Tax of 20% onwards on their net retail price per proof (excluding of the excise tax and value added tax). A specific tax of per proof liter of ₱ 21.63 applicable for the year 2017 and shall be increased by 4% every year thereafter.

Wines, which consists of Sparkling Wines, Still Wines, Carbonated Wines and Fortified Wines which are computed based on “per liter of volume capacity”.

Fermented Liquor, which shall include beer, lager beer, ale, porter, and others except tuba, basi, tapuy, and similar items which shall also base on a “per liter of volume capacity.”

• Tobacco which classified into:

Tobacco Products made in the manner of twisted by hands other than mode of drying and curing, prepared or partially prepared with or without the use of any machine, made into fine-cut shorts, and especially made for chewing are imposed with excise tax on a “per kilogram basis.”

Cigars, either packed by hand or packed by machine are computed on a “per cigar basis.”

B. Petroleum products

These consist of lubricating oils and greases, processed gas, waxes and petroleum, denatured alcohol used for motive power, Naphtha and regular gasoline, leaded and unleaded gasoline, aviation turbo jet fuel, kerosene, diesel fuel oil, Liquefied petroleum gas, Asphalts, Bunker fuel oil and Petroleum Coke.

C. Automobiles

Automobile” shall mean any four (4) or more wheeled motor vehicle regardless of seating capacity, which is propelled by gasoline, diesel, electricity or any other motive power. Buses, trucks, cargo vans, jeeps/jeepneys/jeepney substitutes, single cab, chassis, and special-purpose vehicles shall not be considered as automobiles.

D. Non-essential Goods

Some of these luxury and non-essential products include jewelry; perfumes; yachts and other vessels; expensive mobile phones and wrists watches; expensive arts; and others.

E. Minerals and Mineral Products

This includes coal and coke; nonmetallic minerals and quarry resources; locally extracted natural gas and liquefied natural gas; all metallic minerals; and indigenous petroleum.

F. Sweetened Beverages

The TRAIN law introduced an additional item covered by excise tax, this is the sweetened beverages. It covers sweetened juice drinks, sweetened tea, flavoured water, all carbonated beverages, energy and sports drinks, cereal and grain beverages, other powdered drinks not classifies as Milk, Juice, Tea and Coffee, and other non-alcoholic beverages that contain added sugar.

A ₱6.00 per liter of volume capacity is imposed on sweetened beverages using purely caloric sweeteners, and purely non-caloric sweeteners, or a mix of caloric and non-caloric sweeteners. On the other hand, an excise tax of ₱12.00 per liter of volume capacity is imposed on sweetened beverages using purely high fructose corn syrup or in combination with any caloric or non-caloric sweetener.

Sample Problem

Smokin Company, a business subject to VAT, manufactures machine-packed cigarette which sells for P100 per pack, excluding VAT.  It produced 10,000 packs out of which it sold 9,000 packs for the month of May, 2020.  It also paid P75, 000 input VAT on various purchases. Under the tax law, the sale of cigarettes at a price above P11.50 per pack shall be subject to an excise tax of P37.50 per pack.

How much excise tax should be paid by Smokin Company?

How much is Smokin’s VAT payable?

Excise tax due at the point of production:

               (10,000 packs x P37.50 excise tax per pack)

                = ₱ 375,000.00

Value added tax on sale:

Output VAT (9,000 packs x P100 x 12%)	₱108,000.00
Less: Input VAT	₱75,000.00
VAT due and payable	₱33,000.00

Filing of Return and Payment of Excise Tax

Return shall be filed and the excise tax paid by the manufacturer or producer before removal of domestic products from the place of production; or shall be filed and paid by the importer before removal of the importation from the custom warehouse. Should domestic products be removed from the place of production without the payment of the tax, the owner or person having possession thereof shall be liable for the tax due thereon.

Every person liable to pay excise tax shall file a separate return for each place of production setting forth, among others, the description and quantity or volume of products to be removed, the applicable tax base and the amount of tax due thereon. The return may be filed with, and the tax may be paid to, any authorized agent bank or Revenue Collection Officer, or duly authorized City or Municipal Treasurer in the Philippines.

Upon Export of Excisable Items

When excisable articles are exported without returning to the Philippines whether exported in their original state or as ingredients or parts of any manufactured goods, any excise tax paid thereon shall be credited or refunded upon submission of the PROOF OF ACTUAL EXPORTATION.

Excise tax is one way of granting the business owners the chance to sell their excisable products even though being imposed at taxes relatively higher than normal business taxes. It is now on the judgment on the end consumers whether to purchase or not. This is one way of the government in setting the buyers align with priority items considered by our tax laws.