High excise taxes in the Philippines are pushing adult consumers to buy cheaper, illegal cigarettes and vapes, causing smoking rates to increase, industry players said.
Instead of reducing smoking, higher taxes have made illicit products easier to get, reversing earlier progress, they said. A Canadian study supports this, showing that untaxed cigarettes hinder health benefits by offering an alternative to quitting, increasing relapse and encouraging new smokers.
The price difference between legal and illegal products drives illicit goods sales. The issue is now a concern in the Philippines, with current and former lawmakers raising concern over the troubling trend.
While the Sin Tax Law initially generated significant revenue, reaching P176 billion in 2021, these gains have been eroded, lawmakers said.
Nueva Ecija Rep. Mikaela Suansing cited data from the Bureau of Internal Revenue showing a consistent decline in cigarette excise tax revenues in recent years, including 9 percent in 2022, 23 percent in 2023 and 26 percent in 2024 that brought down collection to P130 billion.
Smoking rates also climbed from 19 percent in 2021 to 24.4 percent in 2023, now encompassing 16.4 million adults, based on Food and Nutrition Research Institute data.
During a recent Senate hearing, Maria Kristina Marasigan, a director at the Department of Health, said the illicit cigarette trade is subverting the nation’s tobacco control policies, including the Sin Tax Reform Law and the Graphic Health Warnings Law.
The lower cost of illicit products, partly because of the price gap between taxed and untaxed cigarettes, drives this trend.
Research published in the Canadian Medical Association Journal estimated that “contraband cigarettes accounted for about 17.5 percent of all cigarettes smoked by adolescent daily smokers in Canada overall, and more than 25 percent in the provinces of Ontario and Quebec.”
Former Senate President Franklin Drilon, the principal author of the Sin Tax Reform Law (Republic Act 10351) also voiced alarm over the increasing prevalence of cigarette smuggling in the Philippines.
Drilon authored and fought for the passage of Republic Act No. 10351 in 2012. The law restructured the excise taxation of alcohol and cigarettes in the Philippines, with the twin objectives of increasing government revenues and curbing smoking consumption. The government immediately succeeded in achieving these revenue and public health goals, collecting P72 billion in tobacco taxes from P33 billion in the previous year.
Drilon said cigarette smuggling has become a big problem for the government. “How can we bring down smoking rates if people are still able to buy very cheap cigarettes similar to those of 2012 prices?” he said.
Illicit vapes are also prevalent, with the Bureau of Customs and the Bureau of Internal Revenue confiscating over P5 billion worth of unregistered vapes in early 2025, largely driven by a tax structure that incentivizes fraud. Freebase nicotine is taxed at P6.62 per milliliter, while nicotine salt faces a much higher tax of P57.30 pesos per milliliter, leading to widespread misdeclaration of vape products.
According to the Department of Agriculture’s daily cigarette price monitoring, the cheapest legal 20-stick pack, RGD, costs P125. Most legal brands are priced between P160 and P225 per pack. However, illicit brands retail for just P30 to P80 per pack, and even less online.
This explains the large quantities of counterfeit cigarettes confiscated in Metro Manila and provincial warehouses in recent months.
Dr. Arthur Laffer, creator of the Laffer Curve, said that applying the Laffer Curve shows that increasing tax rates beyond a certain point can actually decrease revenue as it incentivizes tax evasion and the growth of the illicit market. He said that in the Philippines, the tobacco excise tax rate has reached a “prohibitive range.”
Bienvenido S. Oplas Jr., president of Minimal Government Thinkers in Manila, said that based on the Philippine experience, “the optimal tax rate is P50 per pack, which produced peak tobacco tax revenue of P176 billion in 2021.” Oplas noted that revenue “went south” after 2021, as tobacco tax rates climbed further.
Philippine Tobacco Institute President Jericho Nograles said the government’s annual tax hike policy aimed at reducing smoking has “failed” and led to the open sale of illicit products to minors and widespread online distribution with limited regulation.
“The Global Illicit Trade in Tobacco: A Threat to National Security,” a 2015 paper prepared by the U.S. Department of State, said that “cigarette smuggling impacts health and may introduce products to consumers that do not meet the health regulations of the destination country, including some with ingredients not fit for human consumption.”
According to an original investigation in the Nicotine and Tobacco Research Journal, current and lifetime users of illicit tobacco report significantly worse mental and physical health compared with smokers of lawfully procured tobacco products.
The PTI said reforming the existing tax system would effectively curb illegal commerce, boost government revenue and restore the intended impact of the Sin Tax Law.