The Philippines lost SOME P141 billion ($2.5 billion) in government revenue to the illicit tobacco trade over the past two years, while recording the highest illicit e-vape revenue losses among the ASEAN-6, according to a report released Monday by the EU-ASEAN Business Council (EU-ABC) and Euromonitor International.
The findings show that 86 percent of e-vapes sold in the Philippines are illicit. This is the highest among assessed Southeast Asian nations where e-vapes are legal, exceeding both Indonesia and Malaysia.
Illegal e-vape sales in the Philippines led to government revenue losses of P23 billion ($400 million) from 2024 to 2025. Across the ASEAN-6, illicit tobacco resulted in a total of $13.1 billion in lost government revenue over the past two years.
The report highlights significant growth in the region’s illicit tobacco market and projects the illicit tobacco incidence to rise from 24 percent in 2025 to 28 percent by 2028 across the ASEAN-6. Illicit operators are recording rising year-on-year profits, depriving governments of much-needed tax revenue.
The trend comes as Southeast Asia faces economic and supply chain shocks driven by the Middle East crisis, which has placed government budgets under severe pressure and public scrutiny, raising concerns about the region’s economic resilience. Against this backdrop, the report highlights illicit trade as a strategic risk to ASEAN’s growth ambitions.
Among the ASEAN-6, Indonesia recorded the highest government revenue loss at $5.6 billion, followed by Malaysia and the Philippines at $2.5 billion each.
The illicit tobacco market across the ASEAN-6 generated an estimated $12.6 billion in revenue over the past two years, with illicit cigarette sales growing by 14 percent and illicit e-vape sales by 24 percent in the past year alone. Malaysia’s illicit cigarette market share was the largest in the ASEAN-6 at 57 percent in 2025, making it the only market in the region where illicit cigarette sales exceed legal ones.
Lower prices and growing accessibility drive the demand for illicit tobacco. ASEAN’s extensive and interconnected trade routes and uneven supply chain controls facilitate the supply, which complicates customs enforcement. Manufacturers largely produce illicit cigarettes and e-vapes within the region in Indonesia and Cambodia, with additional supply coming from China. Malaysia, Singapore and Vietnam serve as key distribution hubs.
These findings represent only a fraction of the broader illicit trade challenge facing the region. An earlier EU-ABC report estimated ASEAN’s wider illicit trade market at $35 billion.
“The scale of illicit trade across ASEAN is often sorely underestimated – and, more worryingly, growing at an alarming pace. Its impacts are wide-ranging, spanning economic, public health and security challenges. If left unchecked, illicit trade could jeopardise ASEAN’s economic future as a global growth engine,” EU-ABC executive-director Chris Humphrey said.
The report notes that illicit cigarettes and e-vapes comprise a significant portion of the illicit tobacco trade in Southeast Asia. While illicit cigarette growth is expected to decline over the next three years, illicit e-vapes will see faster growth at almost 9 percent each year, up from just under 7 percent in previous years.
Illicit networks exploit Free-Trade Zones (FTZs) in the region to avoid customs duties and regulatory scrutiny by moving goods in small fishing vessels. Ports within FTZs are known to be hotspots for illegal smuggling, including Port Klang in Malaysia, Subic Bay Freeport Zone in the Philippines, Laem Chabang Port in Thailand and Sabang and Batam in Indonesia.
Importers bring most illicit e-vapes from China and easily disguise them as retail goods for e-commerce orders due to their compact size and individual packaging. Online platforms have become a key enabler of the illicit tobacco trade, as sales of illicit cigarettes and e-vapes often occur through encrypted chat messengers and social media marketplaces. Transactions are frequently completed offline, usually in cash.
“The decentralised nature of online sales makes it hard to crack down on illicit tobacco operations,” Euromonitor International head of consulting for APAC Firdaus Muhamad said.
“Sellers can quickly shift between platforms, communication channels and delivery networks to evade detection,” said Muhamad.
Weak supply chain also controls facilitate the flow of illicit tobacco within the region. Track-and-trace systems, widely regarded as an international best practice for illicit trade prevention, remain decentralised and unevenly applied, making customs enforcement more difficult.
The report illustrates the outsize fiscal impact of illicit trade on ASEAN’s developing economies, draining billions in government revenue that could otherwise support infrastructure, education, healthcare, green investment and other priorities critical to economic development.
“The effects are particularly severe at a time when the region is already facing economic pressures and supply chain disruptions linked to the Middle East crisis,” Humphrey said.
“Revenue lost to illicit trade reduces the fiscal space available for relief and mitigation measures, while illicit networks continue to exploit weaknesses in regional supply chains,” said Humphrey.
The report notes that illicit tobacco diverts revenue away from the formal economy, reducing the wider economic benefits generated by legitimate businesses through employment, taxation and investment.
“Not only does this create unfair competition, the presence of illicit trade also undermines supply chain integrity, signalling weaknesses in regulatory and law enforcement. Over time, this could diminish ASEAN’s attractiveness to foreign investors and legitimate businesses,” Humphrey said.
Beyond economic impact, the report highlights health and security risks linked to illicit tobacco. Illicit products expose consumers to higher levels of toxic chemicals and heavy metals, while revenue gained from illicit sales fuels organised crime and other illegal activities.
In an earlier paper published in February, the Council outlines a blueprint for illicit trade prevention under the Philippines’ 2026 ASEAN Chairship, emphasising stronger regional cooperation and more flexible mechanisms.
“Illicit trade is a regional problem that demands a regional solution,” Humphrey said.
“As illicit operators exploit ASEAN’s regional connectivity for illicit trade flows, so should ASEAN leverage its regional platforms for stronger collective enforcement,” said Humphrey.
The paper calls for the bloc to strengthen institutional coordination through a consolidated, multi-stakeholder platform for intelligence sharing, joint action, commitment implementation and public-private collaboration. To achieve this, the paper notes that rather than creating new institutions, ASEAN could enhance existing cooperation mechanisms under Strategic Trade Management and customs frameworks, building on Joint Customs Control initiatives and ongoing capacity-building efforts. This consolidated platform could then be concretised through a proposed ASEAN Leaders’ Declaration on Preventing Illicit Trade and Diversion.
Other recommendations in the paper include aligning policy and regulatory frameworks across ASEAN for supply chain oversight, leveraging digital and AI tools for customs monitoring and enforcement, and increasing structured collaboration with the private sector and ASEAN’s Dialogue Partners for intelligence sharing and capacity building.
“Illicit trade has been allowed to fester in ASEAN for far too long, giving rise to painful consequences for the region’s communities and economy,” Humphrey said.
“While we cannot take back what has been lost, we must act quickly and decisively to protect government revenues, strengthen supply chain integrity and safeguard ASEAN’s economic resilience. ASEAN’s economic future hangs in the balance,” said Humphrey.
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