700 Million Tax Evasion Cases: How Long Can Philippine E-cigarette Sellers Take Their Last Drag?

The Philippine Bureau of Internal Revenue (BIR) filed 75 criminal lawsuits with the Department of Justice (DOJ) on Wednesday (August 20th), accusing several individuals and enterprises involved in illegal electronic cigarette trading of failing to pay a tax of approximately 700 million pesos.
The 700 million pesos fine is just the prelude
On June 12th, the Philippine Bureau of Internal Revenue (BIR) issued 32 "seizure orders", freezing 41 warehouses located on Luzon, Visayas, and Mindanao Islands. At the scene, 3.67 million electronic cigarette cartridges without tax stamps and 810,000 disposable cigarette sticks were seized. The estimated value was 1.24 billion pesos, corresponding to an evasion amount of 706 million pesos (approximately 89 million yuan).
This is the largest tax enforcement operation in the history of the Philippine e-cigarette industry, and it is also the "first fire" under the new director of the BIR, Lilia Guillermo.
Behind tax evasion: The gray area of "no regulation"
The BIR inspection report shows that the involved enterprises mainly violated three red lines:
1. Failure to register TRU codes: The Electronic Cigarette Law (RA11900) that came into effect in December 2022 requires all e-cigarette products to be registered on the BIR's TRU (Track & Trace Unique) platform and affixed with codes. Violation is regarded as smuggling;
2. False declaration of import prices: The declared FOB prices are generally 30% - 50% lower than the actual purchase prices, using the low tax rate channel of the customs HS code "other electronic equipment";
3. Underground logistics: 90% of the evaded goods enter through "ghost trucking" logistics (fly shipping) from private ports such as South Guanamay and Batangas, avoiding the customs X-ray machine.
However, industry insiders revealed that what truly made sellers "take desperate measures" was the "policy roller coaster" of the Philippine e-cigarette tax system over the past four years:
2020: 47 pesos per milliliter of nicotine solution;
2022: Changed to a graded ad valorem tax, with the maximum being 55 pesos/ml;
2023: Added a 10% ad valorem tax;
2024: Cancelled the 10% ad valorem tax, but the minimum ad valorem tax was raised to 65 pesos/ml.
Each tax adjustment required a re-labeling of prices. The goods with formal customs declaration could not be sold at all and could only go through the gray channel.
The "price anchor" of the Chinese supply chain failed
65% of the supply in the Philippine e-cigarette market comes from Shenzhen and Dongguan in China. Before 2023, the FOB prices given by Chinese factories to large wholesalers were similar regardless of the size of the factory. But in February 2024, the Chinese customs implemented "white list" management for e-cigarette exports, and subcontractors must provide destination country registration certificates (TRU codes). Small factories without TRU instantly lost their export qualifications, leading to a jump in the FOB price of "compliant goods".
After the "price anchor" was removed, there was a polarization in the Philippine market:
Compliant goods: Retail price soared to 350 pesos, sales plummeted by 60%;
Smuggling goods: Maintained 200 pesos, but had to bear higher legal risks.
Wholesalers were like sandwiched cookies, with the left being the price increase from Chinese factories and the right being the tax collection by the Philippine tax bureau.
Consumers "vote with their feet", and offline stores became "frightened birds"
According to relevant reports, a journalist visited 12 e-cigarette collection stores in Manila CBD and found:
3 stores had posted "clearance sale" notices, preparing to switch to selling coffee;
5 stores hid compliant goods under the counter and only showed them to regular customers;
4 stores simply switched to selling "compliant cigarettes" and hung a warning sign saying "Electronic cigarettes are harmful to health" at the entrance.
"Previously, I could sell 200 cigarettes a day, but now it's hard to get 20 cigarettes," said store clerk Aiko. "The first question from customers is not about the flavor, but 'are there any goods without tickets that are cheaper?'".
Next step: Who is on BIR's "hunting list"?
Internal BIR documents show that the inspection is carried out in three stages: June - August: Lock down the top 50 wholesalers with annual import volumes exceeding 50 million pesos; September - December: Track the customs declaration agencies and freight forwarders behind the "fly shipping"; 2025: Jointly with NBI (National Investigation Bureau), file criminal cases against "underground factories".
"We have obtained the background data from Lazada and Shopee, who are selling 'unregistered goods', very clear," BIR Deputy Director Jethro Sabariaga announced at a closed meeting.

Seller's "last window"
The legal advisor of the Manila Chinese Chamber of Commerce and Industry, Marco Lim, gave three suggestions for self-rescue:
1. If the outstanding tax for the fiscal year 2023-2024 is paid within 30 days, no late payment penalty will be imposed.
2. If you voluntarily apply for the TRU code, even if sales are suspended, you must maintain your "white list" status.
3. Negotiate OEM cooperation with local compliant factories (such as Mighty Corp) to circumvent China's export restrictions.
The Philippine e-cigarette market will not disappear, but it will become "compliant". If you don't transform now, you will only have to wait to be liquidated.