A looming threat to public health and national revenue is emerging as lawmakers consider reducing taxes on tobacco and vaping products. Experts warn that such cuts, far from solving the problem of illicit trade, could actually ignite a surge in smoking and a significant loss of government funds.
Recent projections estimate that rolling back tobacco taxes could lead to two million new smokers by 2035, while simultaneously costing the government a staggering ₱167 billion in lost revenue. This alarming forecast stems from analysis of previously proposed legislation that, despite failing to pass, has been resurrected in new bills currently before Congress.
Industry groups argue that high taxes are driving consumers towards black market cigarettes. However, a comprehensive study conducted by the Action for Economic Reforms (AER) and the Johns Hopkins Bloomberg School of Public Health directly refutes this claim. The research points to weak enforcement and governance gaps as the true culprits behind the rise in illicit tobacco.
The study pinpointed specific regions, notably Southern Mindanao – particularly Zamboanga City and General Santos – as hotspots for illegal tobacco activity. These areas suffer from lax government oversight, creating fertile ground for smugglers and counterfeiters. Regional disparities in illicit trade, the report emphasized, cannot be explained by uniform national tax rates.
Investigators uncovered three primary methods used in the illicit tobacco trade: selling products below the legal minimum price, tampering with or bypassing tax stamps, and distributing unregistered brands. Zamboanga City stands out as a particularly egregious example, with nearly 80% of cigarette packs sold below the required tax level and over 96% bearing fake or missing tax stamps.
In stark contrast, areas like Luzon, Visayas, and Metro Manila exhibit significantly lower rates of illicit cigarette sales. For instance, in Navotas, less than 1% of packs were sold below the legal price, and only around 9% had compromised tax stamps. This dramatic difference underscores the critical role of effective enforcement.
The research involved detailed surveys of over 1,000 small retail stores and a meticulous audit of more than 7,500 cigarette packs across eight key cities. This extensive data collection provides a robust foundation for the study’s conclusions.
Senator Risa Hontiveros-Baraquel echoed these findings, asserting that strengthening existing regulations and policies, rather than reducing taxes, is the key to combating illicit trade. She cautioned that lowering taxes, especially during a period of economic strain, could be a detrimental move for the nation’s finances.
Recent data reveals a concerning trend: while smoking prevalence remains stubbornly high, revenue from tobacco excise taxes is actually declining. Collections reached ₱134.52 billion in 2024, a slight dip from the previous year, following a more substantial decline in 2023.
The Bureau of Internal Revenue (BIR) is actively working to address the issue, having collected approximately ₱106 billion in tobacco excise taxes in the first nine months of the year – a significant increase from the same period last year. The BIR is also focused on tackling illicit trade within the growing digital marketplace.
Experts warn that lowering taxes would not only benefit smugglers but also undermine public health initiatives and further erode government revenue. Recommendations include upgrading the tax stamp system with advanced track-and-trace technology, licensing all tobacco retailers, and empowering the BIR with greater resources and authority.
The BIR is currently implementing a multi-year digital transformation program, slated for completion by 2030, which includes enhancements to track-and-trace systems. This modernization effort aims to significantly improve the monitoring and regulation of excisable products, including tobacco.
