The proliferation of illicit cigarettes created a “lose-lose situation” for the Philippines, reduciong government revenue and undermining public health initiatives, according to Senator Sherwin Gatchalian.
Gatchalian, who chairs the Senate Ways and Means Committee, noted the impact of illegal tobacco trade on the country’s dual objectives of generating revenue and promoting public health.
“The reason we impose excise tax on tobacco products is so we can have better health outcomes. But smoking prevalence has now reversed. We’re now in a lose-lose situation because smoking prevalence is going up, tax collection is going down,” he said in a committee hearing.
Data from the Food and Nutrition Research Institute (FNRI) noted a spike in adult smoking prevalence, climbing from 19 percent in 2021 to 24.4 percent in 2023. Meanwhile, tobacco excise tax collections declined from P176 billion in 2021 to P130 billion in 2024.
“From the standpoint of this committee, revenue is going down, but smoking prevalence is going up, so where are the cigarettes coming from? A 5-percent jump [in smoking prevalence] is quite big,” Gatchalian said.
Department of Finance (DOF) director Atty. Nina Asuncion said the DOF Secretary supports measures to curb illicit trade, including a moratorium on tobacco excise tax increases and the adoption of a track-and-trace system.
“If we don’t focus our attention on this, we’ll end up with a scenario where illicit trade might be bigger than legal activities. We want to press on the DOF to take a look at this problem and give us solutions to curb this illicit trade,” Gatchalian said.
The Bureau of Internal Revenue (BIR) reported that excise taxes from illicit vapor products and cigarettes in 2024 amounted to over P64 million and P342 million, respectively.
Philippine Tobacco Institute (PTI) [resident Jericho Nograles expressed the industry’s commitment to enhancing tax collections, supporting the proposed tax hike moratorium to stabilize prices and reduce demand for smuggled products.
“There should be a level playing field where all the industry participants are paying the right tax and complying with all laws and regulations,” PMFTC Inc. president Gijs de Best said in a prepared statement.
De Best called for nationwide enforcement of existing laws, including the Vape Law and the Anti-Agricultural Economic Sabotage Act and urged stronger prosecution of illicit traders.
He also recommended implementing a minimum retail price for cigarettes, addressing tax loopholes for vapor products, and fostering international and regional government to government cooperation to halt the illicit trade supply chain.
Gatchalian highlighted the potential tax losses from the thriving illegal trade. “
According to my office’s estimates, the country will be losing P70 billion in taxes in the next three years due to the ‘intensity’ of illicit trade,” he said.
“Aside from enforcement, we should think of other ways—maybe economic ways—to curb illicit trade. Because of the huge incentives of the prices of illicit cigarettes versus legal cigarettes, we cannot take away the fact that criminals are being incentivized because of this huge arbitrage between illicit cigarettes and licit cigarettes,” Gatchalian said.
