The House Ways and Means Committee has recommended the filing of tax evasion charges against the local distributor of the controversial Chinese e-cigarette Flava following seizure of some P1.4 billion worth of illicit devices.
The committee, chaired by Rep. Joey Sarte Salceda, also found Flava Corporation to have mis-declared their tax classification and despite being registered as a manufacturer actually has no manufacturing facility in the country.
“There are only two possible conclusions, both of which involve tax evasion and other violations of law, rules and regulations on the part of the Flava Corporation,” said the Committee report. It also noted that the company has no brands registered to import.
Rep. Rufus B. Rodriguez filed the resolution for the House to conduct the inquiry to address the reported smuggling of electronic cigarettes and the resulting foregone taxes amounting to P728 million.
After two hearings, the Committee recommended the Bureau of Customs (BOC) and Bureau of Internal Revenue (BIR) to pursue legal action against the Flava Corporation and based on findings and evidence, utilizing pertinent laws to ensure accountability.
Citing Section 115 (a) of the National Internal Revenue Code (NIRC), the Committee advised the immediate suspension of Flava Corporation's business operations by the Bureau of Internal Revenue (BIR). The BIR has the authority to suspend business for offenses, such as failure to issue receipts, file value-added tax returns, or accurately report sales according to the report.
The Committee also recommended filing charges against Flava Corporation under Section 263 of the NIRC for unlawful possession or removal of articles subject to excise tax without proper payment. The NIRC prescribes a fine of P10 million to P20 million and imprisonment of 10 to 12 years for those found guilty of such offense which involves goods with appraised value exceeding P1 million.
To mitigate further illicit trade, the Committee recommended preventing the public sale of all Flava Corporation e-cigarette products that cannot prove appropriate tax payment and registration with the BIR. This aligns with Section 23 of RA No. 11900 or the Vape Law, which mandates the recall, ban, or seizure of unregistered vapor products.
With these recommendations, authorities aim to curb the proliferation of illegal trade and ensure compliance with tax regulations, safeguarding the integrity of the market and protecting public health.
The House inquiry stemmed from the discovery by the Intellectual Property Rights Division of the Customs Intelligence and Investigation Services of a warehouse in Valenzuela allegedly “utilized as a storage of illegally imported electronic cigarettes and vape products without payment of correct duties and taxes.”
The IPRD-CIIS, the Formal Entry Division of the Port of Manila and the Philippine Coast Guard Task Force Aduana, with a BOC issued Letter of Authority to demand documents as proof of payment of duties and taxes, inspected three warehouses. The inspection revealed 14,000 boxes containing around 1.4 million pieces of 10 milliliter disposable vape marked “Flava” with an estimated value of P700 million with excise tax amounting to P728 million.
According to the House report, the initial documents submitted by Flava Corporation “did not include import documents and proof of payment of duties and taxes. Meanwhile, the office address of Flava Corporation was found to be a 150-sqm two-story commercial-residential house and the declared manufacturer address was a “two-story residential house showing no capacity to manufacture and accommodate machinery,” according to the report.
During the hearing on December 12, 2023, a representative of Flava Corporation testified that “they procure their products through third-party importers – even when Flava Corporation’s brands are licensed as being domestically manufactured.” The report said this admission is prima facie evidence of importing electronic cigarettes without licensed brand to import.
The BIR noted that “Flava Corporation has no brands registered for importation. Therefore, they have no authority to import vapor products into the country.”
The Committee report sheds light on the magnitude of illicit activities in the electronic cigarette industry, emphasizing the need for robust enforcement measures and legislative reforms to combat such practices effectively.