A company whose warehouse in Valenzuela City was discovered to be containing P1.4 billion worth of unregistered vapes in October 2023 should face tax evasion charges, a House of Representatives panel said in a report.
The House Committee on Ways and Means chaired by Rep. Joey Sarte Salceda recommended the charges and the immediate halt of Flava Corp.’s operations following the discovery of mis-declared electronic cigarettes bearing the Flava brand.
Only two conclusions are possible, according to the House committee report, and both involve tax evasion and other legal violations by Flava Corp., unless the company can prove its ability to locally manufacture vapes.
The report noted that Flava Corp. has no registered brands for import and no facility capable of domestic manufacturing.
The House panel conducted an inquiry based on the proposal of Rep. Rufus B. Rodriguez who wanted to look into reports of smuggled electronic cigarettes and the resulting loss of P728 million in tax revenue.
After two hearings, the committee directed the Bureau of Customs (BOC) and Bureau of Internal Revenue (BIR) to pursue legal action against Flava Corp. based on their findings and evidence. They also urged the use of relevant laws to ensure accountability.
Citing Section 115 (a) of the National Internal Revenue Code (NIRC), the committee asked the BIR to immediately suspend Flava Corporation’s business operations. The BIR has the authority to suspend businesses for offenses such as failing to issue receipts, filing value-added tax returns, or accurately reporting sales.
The committee also recommended the filing of charges against Flava Corp. 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 convicted of this offense, which applies to goods with an appraised value exceeding P1 million.
To curb further illicit trade, the committee recommended preventing the public sale of all Flava Corp.’s e-cigarette products that cannot demonstrate proper tax payment and registration with the BIR.
This aligns with Section 23 of Republic Act No. 11900, or the Vape Law, which mandates the recall, ban, or seizure of unregistered vapor products.
The recommendations aim to stop the spread of illegal trade and ensure compliance with tax regulations, protecting both the market’s integrity and public health.
The House inquiry stemmed from the discovery by the Intellectual Property Rights Division of the Customs Intelligence and Investigation Services (IPRD-CIIS) of a warehouse in Valenzuela allegedly “used to store illegally imported electronic cigarettes and vape products without paying the 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, inspected three warehouses.
The inspection revealed 14,000 boxes containing around 1.4 million pieces of 10-milliliter disposable vapes marked “Flava,” with an estimated value of P700 million and an excise tax requirement of P728 million.
According to the House committee report, the initial documents submitted by Flava Corp. “did not include import documents and proof of payment of duties and taxes.”
The report also found that Flava Corp.’s registered office address was a 150-square-meter two-story commercial-residential house, and the declared manufacturer address was a “two-story residential house showing no capacity to manufacture and accommodate machinery.”
During a hearing on December 12, 2023, a representative of Flava Corp. testified that “they procure their products through third-party importers,” even though Flava Corporation’s brands are licensed as domestically manufactured. The report said this admission is considered preliminary evidence of importing electronic cigarettes without a licensed brand for import.
The BIR also discovered that “Flava Corp. has no brands registered for importation. Therefore, they have no authority to import vapor products into the country.” The committee report highlights the seriousness of illegal activities within the electronic cigarette industry, underscoring the need for stronger enforcement measures and legislative reforms to effectively combat such practices.
