BIR justifies higher excise tax on Pall Mall cigarettes

The Bureau of Internal Revenue (BIR) has justified the higher excise tax rate it had slapped on Pall Mall cigarettes, saying that provisions of existing laws provide basis for the agency’s actions.

The BIR, which stood by its earlier ruling and kept the excise tax rate of Pall Mall cigarettes at P26.06 per pack, raised several points in justifying its latest decision.

In a recent memorandum to Finance Undersecretary Gaudencio Mendoza Jr., BIR commissioner Lilian Hefti said the agency has legal basis in imposing the higher excise tax on the locally manufactured brands or equivalent to the excise tax imposed on imported brands.

“The Bureau imposed the higher rate of excise tax on the locally manufactured brands equivalent to the excise tax imposed on the imported brands applying thereto the provision of Republic Act 9334 as amplified in Section 6 of Revenue Regulations No. 3-2006, which states in substance that tax classification of brands introduced before the effectivity of RA 9334 shall not be lower than the highest tax classification for such new brand or any existing variant thereof,” Hefti said in the memorandum.

RA 9334 is the law that increased the excise tax rates for alcohol and tobacco products.

The Department of Finance (DOF), however, maintained that it has yet to make a final ruling on the issue even as the BIR has already submitted its position.

Since last year, the Pall Mall brand of cigarettes, owned by British American Tobacco (BAT), has been at the center of debates among lawmakers, the government and cigarette industry players because of two different tax rates given to the brand by the BIR and the Finance department.

In February last year, the BIR had slapped an excise tax rate of P26.06 per pack on the Pall Mall cigarette brand as this was previously sold in duty-free shops.

However, in July last year, the Finance department reclassified Pall Mall as a mid-price brand which is subject to an excise tax rate of P6.74 per pack or P19.32 lower than the P26.06 per pack tax rate that was imposed by the BIR.

This was after BAT complained before the DOF regarding the higher tax rate slapped on Pall Mall.

Lawmakers have called the attention of Finance officials, saying that the department did not have the authority to reverse a BIR tax ruling.

In arguing its position, the BIR said that it was not necessary to validate and revalidate the tax classification of Pall Mall because the brand is already classified under the highest tax bracket.

“To conduct a validation and revalidation process would be an exercise in futility since Pall Mall brands’ tax classification could no longer be reduced because downward classification is prohibited under RA 9334,” the BIR said.

The BIR also said that there is no legal basis for the claim of BAT that its locally manufactured Pall Mall brands have no final classification and that imported brands were already de-listed in the duty-free shops.

“Locally manufactured Pall Mall brands were already given a final classification by this bureau. Thus, any maneuver or scheme to declassify said brands is beyond issue. Moreover, simply ‘de-listing’ of a product in the market should not result to the reclassification of the same for purposes of the imposition of the excise tax,” the BIR said.

BAT earlier threatened to pull out the brand from the Philippine market if the BIR will insist to tax Pall Mall the excise tax rate of P26.06 per pack.

Several other cigarette companies in the country, meanwhile, have complained against the Finance department’s July 24 ruling.

Fortune Tobacco, American-owned Philip Morris, Associated Anglo-American Tobacco Corp. (Anglo-American) and Japan Tobacco International(JTI) Philippines have filed a motion for reconsideration on the DOF’s July 24 ruling, saying that the cigarette brand was previously sold in duty-free shops.