British American Tobacco

vs.
Camacho
G.R. No. 163583 15 April 2009
YNARES-SANTIAGO, J.:
British American Tobacco is the distributor
of Lucky Strike Cigarette in the Philippines

British American
tobacco
The company is questioning the
constitutionality of RA 8240, entitled "An
Act Amending Sections 138, 139, 140, and
142 of the NIRC, as Amended and For Other
Purposes," which took effect on January 1,
1997
 The law provided a
legislative freeze on
brands of cigarettes
introduced between the BIR
period January 2, 1997 to
December 31, 2003, such
that said cigarettes shall

“
remain in the
classification under cigarettes shall
which the BIR has remain in the
determined them to
classification
belong as of December 31,
2003, until revised by under which
Congress. the BIR has
determined
 FACTS:
• In effect: older brands or existing
brands will have, in the long term, lower
price and tax rate as inflation and price
appreciation were not factored in.
o Their tax rate shall remain until
Congress changes it
o Hence, a legislative freeze in the
class of cigarettes
 Net Retail 2005 Tax 2007 Tax 2009 Tax 2011 Tax Supreme Court
Price Classification
(excluding
excise tax
andVAT
Less thanP5 P2/ pack P2.23/pack P2.47/pack P2.72/pack Low-priced
per pack
Bet P5-P6.50 P6.35/pack P6.74/pack P7.14/pack P7.56/pack Medium-priced
Bet P6.50-P10 P10.35/ pack P10.88/pack P11.43/pack P12/ pack High-priced
Above P10 P25/pack P26.06/pack P27.16/pack P28.30/pack Premium-priced
New brands shall be Tax rate
classified according
to current net retail
price
P10.0
In 2001, Lucky Strike

0
was introduced in the
New brands are the market
ones registered after
January 1, 1997 Lucky Strike was
classified as
premium-priced
hence was imposed
the Above P10 tax rate
 Lucky Strike protested the P22.77M tax
assessment pegged at P25/pack

P22.77M
TaxP25/pac
k
assessment

Lucky Strike interposes that the legislative freeze is

discriminatory against new brands and poses
barrier to entry in the cigarette industry
o Legislative freeze means: existing or "old" brands shall
be taxed based on their net retail price as of October 1,
1996.
o Hence, the classification based on pricing is lower for
older brands compared to new entrants
 Lucky
/ Marlboro
Strike
Lucky Strike found it unfair that
Philip Morris and Marlboro are
classified only as High-priced while it
is classified as Premium Priced.
Whether or not The pertinent portions of RA
8240, as amended by RA 9334, discriminates
against new cigarette brands and favors old
cigarette brands

No.
 Whether or not The classification freeze
provision unduly favors older brands over
newer brands?

No.
 Ruling 1
In applying the rational basis test, the Court found the
questioned law Constitutional.
• A legislative classification that is reasonable does not
offend the constitutional guaranty of the equal protection of
the laws.
• The classification is considered valid and reasonable
provided that:
(1) it rests on substantial distinctions;
(2) it is germane to the purpose of the law;
(3) it applies, all things being equal, to both present and future
conditions; and
(4) it applies equally to all those belonging to the same class.
 Ruling 2
Classification freeze provision uniformly applies
to all newly introduced brands in the market

Finding that the assailed law seems to derogate, to a

limited extent, one of its avowed objectives (i.e.
promoting fair competition among the players in the
industry) would suggest that, by Congress’s own
standards, the current excise tax system on sin products
is imperfect. But the Court cannot declare a statute
unconstitutional merely because it can be improved or
that it does not tend to achieve all of its stated objectives.