The Department of Finance (DOF) supports a proposed two-year moratorium on the annual hikes in tobacco excise tax.
House Committee Ways and Means Chair and Albay Rep. Joey Sarte Salceda said lawmakers are leaning toward recommending the suspension of the tobacco tax hikes to stabilize tax collection.
The DOF and the Bureau of Internal Revenue (BIR) echoed this view, highlighting a significant decline in tobacco excise tax revenue—from P176 billion in 2021 to a projected P130.9 billion in 2024.
“Revenues from tobacco incurred a downfall of 29 percent in 2024, which translates to P54.4 billion against target,” said BIR Commissioner Romeo Lumagui Jr., pointing to the surge in illicit cigarette trade as a major factor behind the shortfall.
DOF assistant secretary Karlo Fermin Adriano confirmed that the department has no objections to the proposal and are reviewing the optimal excise tax rate.
The law mandates a 5-percdent annual increase in cigarette excise tax. Salceda, however, suggested that the rate should instead increase by 6 percent every two years to reduce the growing prevalence of illicit cigarettes.
Nueva Ecija 1st District Rep. Mikaela Angela Suansing said the growing market for illicit cigarettes since 2021 correlates with a cumulative revenue drop of P41 billion between 2021 and 2023. She argued that a moratorium would allow legitimate cigarettes to compete more effectively against illicit and electronic alternatives, preventing further price disparities.
“This moratorium will do a lot in terms of preventing the gap between the prices of manufactured and legitimate cigarettes versus the prices of illicit cigarettes,” Suansing said. “It is the gap in prices that is driving the shift from legally manufactured cigarettes to illicit cigarettes.”
Ilocos Sur 2nd District Rep. Kristine Singson-Meehan noted the successes of the Sin Tax Law in reducing smoking rates while increasing government revenue, with tobacco excise collections reaching P769 billion from 2019 to 2023, up from P532.5 billion between 2014 and 2018.
However, Meehan pointed to the decline in tobacco excise tax collections and attributed much of the loss to the growing presence of illicit and smuggled tobacco products.
“This decline in government revenue may largely be attributed to the continuous rise of cheap, smuggled, and non-tax paid tobacco and vapor products,” Singson-Meehan said.
She said the revenue losses could have supported vital public health initiatives and rural development projects.
Suansing also proposed a review of excise tax rates, arguing that the optimal rate was reached in 2021, when the government collected a peak P176 billion in tobacco excise taxes. Since then, she noted, the continuous tax increases have resulted in a sharp drop in revenue, with 2023 collections falling to only P135 billion, P15 billion short of the BIR’s target.
“While it is in the country’s legitimate interest to impose and collect higher taxes on sin products, the increase in excise taxes on registered cigarette products has unintentionally fueled the proliferation of illicit and counterfeit products due to their low-entry point and affordability,” Suansing said.
She cited a Euromonitor study showing the illicit cigarette trade in the Philippines almost doubled from 10.4 percent in 2019 to 19.9 percent in 2024.
Former Rep. Jericho Nograles, speaking for the Philippine Tobacco Institute, underscored the detrimental effects of illicit trade on the tobacco sector. Quoting Euromonitor, he warned that by the end of 2025, illicit products would make up 19 percent of the domestic market, with some areas in Mindanao seeing illicit cigarette sales as high as 90 percent.
“Ilicit trade thrives due to the availability of untaxed cigarettes sold at a fraction of the price of legitimate products,” Nograles said.
“Legal cigarettes are up to five times more expensive than their illicit counterparts, which is driving the market for illegal cigarettes and undermining government revenues.”
Bienvenido Oplas Jr., president of the Minimal Government Thinkers, advocated for a rollback of tobacco excise taxes. He suggested that the optimal rate for a pack of cigarettes is P50, a level that previously resulted in P176 billion in tobacco excise revenue. Oplas warned that higher tax rates have resulted in declining revenues.
“Any amount, any tax rate higher than P50 gave us inferior revenues,” he said, adding that a moratorium would not suffice. To hit P176 billion in revenue, he said the government should consider a rollback to P50.
