G.R. No. 163583 April 15, 2009 BRITISH AMERICAN TOBACCO vs C!

"#o
Bri$is# A!%ri"& To'""o Corpor$io& v. (i&&"% S%"r%$r) C!"#o,
BIRCo!!issio&%r *r)&o +2008,
-o"$ri&%. Classification if rational in character is allowable. The taxing power has the
authority to make reasonable and natural classifications for purposes of taxation.
("$s.
British American Tobacco is the distributor of Lucky Strike Cigarette in the
Philippines
The company is uestioning the constitutionality of !A "#$%& entitled 'An Act
Amending Sections ()"& ()*& ($%& and ($# of the +,!C& as Amended and -or
.ther Purposes&' which took effect on /anuary (& (**0
The law pro1ided a legislati1e free2e on brands of cigarettes introduced between
the period /anuary #& (**0 to 3ecember )(& #%%)& such that said cigarettes shall
remain in the classification under which the B,! has determined them to belong
as of 3ecember )(& #%%)& until re1ised by Congress.
,n effect4 older brands or existing brands will ha1e& 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 5ence& a legislati1e free2e in the class of cigarettes
+et !etail
Price
6excluding
excise tax
and 7AT
#%%8 Tax #%%0 Tax #%%* Tax #%(( Tax Supreme
Court
Classification
Less than
P8 per
pack
P#9pack P#.#)9pack P#.$09pack P#.0#9pack Low:priced
Bet P8:
P;.8%
P;.)89pack P;.0$9pack P0.($9pack P0.8;9pack <edium:
priced
Bet P;.8%:
P(%
P(%.)89pack P(%.""9pack P((.$)9pack P(#9pack 5igh:priced
Abo1e
P(%
P#89pack P#;.%;9pack P#0.(;9pack P#".)%9pack Premium:
priced
+ew brands shall be classified according to current net retail price
+ew brands are the ones registered after /anuary (& (**0
,n #%%(& Lucky Strike was introduced in the market
Lucky Strike was classified as premium:priced hence was imposed the Abo1e P(%
tax rate
Lucky Strike protested the P##.00< tax assessment pegged at P#89pack
Lucky Strike interposes that the legislati1e free2e is discriminatory against new
brands and poses barrier to entry in the cigarette industry
o Legislati1e free2e means4 existing or 'old' brands shall be taxed based on
their net retail price as of .ctober (& (**;.
o 5ence& the classification based on pricing is lower for older brands
compared to new entrants
Lucky Strike found it unfair that Philip <orris and <arlboro are classified only as
5igh:priced while it is classified as Premium Priced.
/ON.
(. The pertinent portions of !A "#$%& as amended by !A *))$& discriminates
against new cigarette brands and fa1ors old cigarette brands=
#. The classification free2e pro1ision unduly fa1ors older brands o1er newer
brands=
Held: ,n applying the rational basis test& the Court found the uestioned law
Constitutional.
A legislati1e classification that is reasonable does not offend the constitutional
guaranty of the eual protection of the laws.
The classification is considered 1alid and reasonable pro1ided that4
6(> it rests on substantial distinctions?
6#> it is germane to the purpose of the law?
6)> it applies& all things being eual& to both present and future conditions? and
6$> it applies eually to all those belonging to the same class.
classification freeze provision uniformly applies to all newly introduced brands in
the market&
-inding that the assailed law seems to derogate& to a limited extent& one of its
a1owed ob@ecti1es 6i.e. promoting fair competition among the players in the
industry> would suggest that& by CongressAs 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 impro1ed or that it does not tend to
achie1e all of its stated ob@ecti1es.