A group of House leaders filed a bill to temporarily suspend the annual increases in tobacco excise taxes to combat the growing illicit tobacco trade and the resulting decline in government revenue.
The multipartisan group, which includes two House deputy speakers, said the Sin Tax Law’s dual goals of boosting government revenue and promoting public health are severely undermined by the spread of counterfeit and smuggled tobacco products.
The lawmakers pointed to declining tobacco excise tax revenues as evidence of the impact of illicit trade.
“From a peak collection of P176 billion in 2021, tobacco excise revenues declined to P160 billion in 2022. In 2023, the Bureau of Internal Revenue (BIR) reported that the government lost around 15.9 percent or P25.5 billion in revenue due to illicit trade in cigarettes, ending collections in 2023 with P135 billion,” the bill said.
“This lost revenue amounting to billions of pesos adversely affected the government’s funding for health programs,” the authors said.
Among the authors of House Bill 11279 are Deputy Speaker and Isabela 1st District Rep. Antonio Albano, Deputy Speaker and Ilocos Sur 2nd District Rep. Kristine Singson Meehan, Ilocos Norte 2nd District Rep. Angelo Marcos Barba, Kabayan Party-list Rep. Ron Salo, Ifugao Lone District Rep. Solomon Chungalao and PBA Party-list Rep. Margarita Nograles-Almario.
The sponsors of the bill argued that high excise taxes on tobacco products have unintentionally incentivized illicit tobacco trade.
“While it is in the country’s legitimate interest to impose higher taxes on sin products, the increase in excise taxes on registered cigarette products has unintentionally led to the proliferation of illicit and counterfeit products due to their low entry point and affordability,” they said.
“Destroying legitimate businesses through excessive taxation, while illicit traders continue to dominate the market, is unacceptable. This undermines the nation’s goal of fostering a stronger economy, which ultimately benefits the greater public,” the lawmakers said.
The proposed measure seeks to suspend, for one year, the automatic 5-percent annual increase in excise taxes on tobacco products, heated tobacco products, vapor products, cigars, and cigarettes.
The temporary suspension aims to close the price gap between legitimate and illicit tobacco products, encouraging consumers to switch from smuggled to legitimate products.
The bill also addresses the issue of mislabeled vapor products, which exploit regulatory loopholes to avoid higher taxes. Some products falsely labeled as containing only freebase nicotine actually contain salt nicotine. The authors proposed a unified tax rate for all vapor products to combat this practice and ensure proper tax collection.
The bill further emphasizes that the illicit tobacco trade poses a serious threat to national security.
“Illicit trade of tobacco products, which may now include vapor products, has been linked to the financing of terrorist organizations,” the bill said.
The lawmakers cited a study by the United States Department of Homeland Security, which noted that “tobacco smuggling may fuel transnational crime, corruption, and terrorism and, as it converges with other criminal activities, it tends to undermine the rule of law and the licit market economy, creating greater insecurity and instability in many of today’s security ‘hot spots’ around the world.”
“This bill seeks to lessen the burden on legitimate businesses, level the playing field, discourage illegal trading practices, ensure fair competition in the market, and strengthen national security,” the authors said.
The proposed legislation is intended to support the sustainability and growth of legitimate enterprises while ensuring the government secures its rightful revenue through fair and equitable taxation.