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Publication Detail
NTRC TRJ: Feasibility of Imposing an Excise Tax on Electronic Cigarettes (E-Cigarettes)

The paper examines the historical development of electronic cigarettes (e-cigarettes) in the Philippines, its health benefits and effects, and various government proposals being introduced in other countries with regard to the taxation of these products. E-cigarette is an inhaler known as a vaporizer cigarette that vaporizes a liquid solution into an aerosol mist, simulating the act of tobacco smoking. It releases doses of water vapor that may or may not contain nicotine. It appears as a long tube-like cigarette that looks either like tobacco cigarette or like biros (ballpoint pens). It has a replaceable throwaway cartridge, and powered by a small battery. Presently, 99% of all e-cigarettes are produced in China since Hon Lik, a 52-year old Chinese pharmacist, invented the first modern e-cigarette in 2003. However, the first e-cigarette was designed in 1963 by a man named Herbert Gilbert when he patented a device that produced a vapor from tobacco by heat rather than combustion. E-cigarettes are becoming popular among Filipinos. In fact, these are now being sold in several stores and unlikely places such as overpasses and sidewalks in Metro Manila. As they gain popularity, distributors and sellers are also increasing. As gathered, store owners, suppliers and manufacturers of e-cigarettes and related products formed the Philippine E-Cigarette Industry Association Inc. (PECIA) and registered it with the Securities and Exchange Commission (SEC) on April 29, 2013. PECIA is envisioned as the trade/service association of the e-cigarettes industry that serves to promote and institute industry-wide standards and a Code of Conduct, maintain sound professional practices and ensure the proper use of e-cigarettes. It aims to set forth best practice standards and serve as the self-regulatory body of the industry. Moreover, the Association aims to conduct social, civic and humanitarian activities for the benefit and welfare of the general public and industry stakeholders. Recently, the Department of Health (DOH) warns the public against the use of e-cigarettes saying that they will not help people quit smoking. Worse, they could even deliver nicotine to the lungs. Likewise, doctors of the Pulmonary Medicine Section of the Medical City stated that e-cigarettes are not safe substitutes for smoking and their proliferation is now a cause of concern for pulmonary disease experts. The FDA issued Advisory No. 2013-15 citing that e-cigarettes are not free from emission and that they contain organic substances that are volatile. No e-cigarette has yet been approved as a medical nicotine replacement therapy product or subjected to the necessary clinical testing. Thus, no health organization has officially endorsed this product. The World Health Organization (WHO) declared that it did not support e-cigarettes as a legitimate therapy to help smokers to quit, as many of the marketing claims for e-cigarettes are not supported by evidence. It has been argued that the harmful effects of real cigarettes are the same as e-cigarettes because of the same chemicals found in them, making the use of e-cigarettes not advisable. Its promotion and use would most likely encourage many teenagers as well as children to be smokers. Due to this, certain governments have banned the sale and consumption of e-cigarettes in their country or are looking at the feasibility of taxing them as a tobacco product. With regard to its taxation, the sale and importation of e-cigarette in the Philippines is subject to the 12% VAT. It is also subject to customs duty when imported into the country. Since there are evidences that e-cigarettes have cancer-causing effect as real tobacco cigarette, these should be accorded the same treatment and imposed an excise tax on their consumption. Said tax imposition would limit their consumption and prevent diseases brought about by the chemicals found on them. The imposition of excise tax will discourage beginners such as teenagers as well as children to smoke and will likewise contribute to the revenue of the government that can be used to fund health related projects, particularly in calamity-stricken areas. Since the sale of e-cigarette is on a per kit basis, it would be advisable to tax it on an ad valorem basis based on its net retail price (NRP) excluding excise tax and VAT per kit or a combination of ad valorem and specific tax rate just like cigars.

National Tax Research Center
Authors Keywords
NTRC; excise tax; Electronic Cigarettes (E-Cigarettes);
Download PDF Number of Downloads
Published in 2014 and available in the NTRC Library or Downloaded 177 times since May 06, 2019
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