Government urged to lower tobacco tax rates

As illicit trade, pricing worsen

MANILA, Philippines — The government should consider lowering tobacco tax rates to replenish its declining revenues as illicit trade and price disparity worsen, the Philippine Tobacco Institute said.

PTI said tax policies and illicit trade are inextricably linked as the organization pushes for the recalibration of tobacco excise taxes and enhancement of enforcement and prosecution efforts.

It issued the call days before the Senate Committee on Ways and Means discusses House Bill 11360, which seeks to adopt an odd-even scheme in hiking the tobacco excise taxes: two percent every even-numbered year and four percent every odd-numbered year until 2035.

The proposed measure aims to cut down the current tobacco excise tax rate, which increases by five percent annually, with a base tax of P60 per pack.

PTI president Jericho Nograles argued that overly aggressive or automatic tax hikes can incentivize illicit trade.

He said higher taxes widen the price gap between legal and illegal products, thus increasing the profitability of smuggling and counterfeiting.

“The automatic tax hikes have resulted in declining government revenues. Our position is that if Congress lowers the rates and the government steps up in enforcement, then there would likely be better collections and revenues,” Nograles said.

“It would not only be acceptable, but a win-win for industry and government when illicit trade in tobacco is stopped,” he said.

The organization of legitimate tobacco manufacturers, importers, exporters and growers maintained that the scale and geographic spread of illegal tobacco and vape products continue unabated.

Last year, illicit tobacco incidence reached a record 18.2 percent. Data showed that one in every five cigarettes sold in the country comes from illicit sources.

As such, government revenues are on a downtrend, with excise tax collection slipping to P134 billion last year. In terms of volume, legal and tax-paid cigarettes dropped to 43.8 billion sticks in 2024.

Despite the decline, smoking incidence has still increased to 23.2 percent, driven by the availability of cheaper and unregulated products, which cost only around P40 per pack versus P140 for legitimate ones.

In effect, the declining tax take is threatening the funding for the health programs of the government.

“With annual tax hikes making legal products less affordable, consumers are not quitting – they’re switching. Worse, these illicit products are now being openly sold to minors and widely distributed online with little to no regulation,” Nograles said.

“If we do not act decisively now, the damage to our fiscal health, public welfare and the rule of law may soon be beyond repair,” he said.