Another corruption scam exposed

There seems to be no end to the corruption scams unravelling in government. We’ve all heard about the flood control scams that lawmakers and their contractor cohorts have feasted on. This time, let me shine the light on another racket raging in government – cigarette smuggling.

Over the last three years, government has lost tens of billions in excise tax revenues from cigarette smuggling. The numbers are staggering – collections peaked at P176 billion in 2021 and plunged to just P134 billion by 2023 – that’s a P40-billion free fall due to smuggling. Collections continue to drop until today.

Why is this relevant? Because excise taxes fund the country’s Universal Health Care program. The less funds collected, the less funding for UHC.

For 2025, the cumulative shortfall in the Universal Health Care funding is projected to reach P123.7 billion. For context, this amount can buy two million hospital beds, enough to ease the national shortage. It could build and upgrade hundreds of rural health centers or subsidize PhilHealth premiums for millions of indigent families.

When Congress passed the Sin Tax Reform Law of 2012, it was hailed as both an economic and public-health triumph. On one hand, it discouraged tobacco consumption – while on the other, it raised funds for both PhilHealth’s USC program and DOH’s Health Facilities Enhancement Program (HFEP). It was a win-win situation.

Between 2012 and 2018, the programed worked well, helping to quadruple the DOH’s budget. The increase in funding enabled PhilHealth to expand medical coverage to millions of Filipinos who could never afford hospitalization. Simultaneously, the “price shock” from higher cigarette prices pushed adult smoking prevalence down from 31.0 percent in 2008 to 18.5 percent by 2021.

Then came the criminal syndicates.

As excise taxes increased, cigarette prices jumped to P100+ per pack. Smugglers found an opportunity. They began to import cheap cigarettes without paying appropriate taxes, enabling them to flood sari-sari stores with chemical-laced cigarettes retailing for as low as P40 a pack.

Government and industry estimates now place the illicit-trade share of smuggled cigarettes at 18 to 20 percent of all cigarettes sold nationwide. Every stick that escapes taxation is a peso stolen from UHC. The Bureau of Internal Revenue (BIR) estimates that up to P40 billion to P60 billion a year vanish into the black market.

This is not petty smuggling – this is institutional-scale economic sabotage. Behind counterfeit tax stamps and hidden warehouses are the same criminal networks that traffic drugs, weapons and other contraband. They siphon billions meant for health care into the coffers of organized crime.

The repercussions

Smuggling has undone decades of progress. Taxes meant to save lives are leveraged by criminal elements while government watches on the sidelines, doing little to arrest the problem. Ordinary Filipinos pays the price. Consider these figures:

• PhilHealth budget cuts. In 2023, PhilHealth’s allocation stood at P100.2 billion. By 2024, it was slashed to just P61.5 billion due to a shortfall in excise tax collections.

• DOH programs stalled. HFEP funds used to upgrade provincial hospitals and purchase essential equipment were drastically reduced. As a result, dialysis slots are now rationed in DOH hospitals. Provincial health centers run out of cancer medications halfway through the year. Poor municipalities are left with crumbling wards and outdated machines. Rural clinics still lack doctors.

• Household burden rising. As public funds shrink, out-of-pocket expenses for ordinary Filipinos soar. As it stands, Filipinos already shoulder one of the highest health care spending-to-income ratios in ASEAN. This is because when government subsidies retreat, medical spending, debt and untreated illnesses follow.

• Cheap, illegal cigarettes have made smoking accessible again to the young. According to the 2023 National Nutrition Survey, smoking among adolescents doubled from 2.3 percent in 2021 to 4.8 percent in 2023. Among adults, prevalence rose from 18.5 to 23.2 percent within two years. Illicit cigarettes, typically sold without graphic health warnings and tax stamps, now sit beside candies and soft drinks in public markets and sari-sari stores. Many contain unregulated chemical mixtures far more toxic than legal products.

What can be done?

Tighten enforcement. The BIR and Bureau of Customs must be empowered to deploy digital tracking, increase field inspections and tighter coordination with the PNP and LGUs. Confiscations alone will not suffice – supply-chain reforms are key.

Increase penalties. The cost of getting caught must outweigh the gains for the smuggler, the retailer and the user. Illicit-trade profiteers should face economic-sabotage charges, not token fines.

Regulate new nicotine products. Vape and heated-tobacco products are the next frontier of tax evasion. The law must keep pace with technology.

Sustain public education. Youth smoking spike is reversible if government and civil society reclaim the narrative with science-based campaigns.

Above all, political will is non-negotiable. The same vigor shown in taxing honest businesses must be applied to dismantling syndicates that rob us blind.

The illicit-tobacco trade steals from the poor twice. First by luring them into addiction through cheap cigarette prices, then by draining the fund that could pay for their cure. Every smuggled pack is a hospital bed lost, a cancer patient denied medicine and a community health worker left unpaid.

The health of a nation cannot depend on the mercy of smugglers. If we fail to plug this leak, the promise of health for all will continue to elude the Filipino, gasping for air amid the smoke of smuggled cigarettes.

The sin-tax system was one of the few public-finance reforms that worked. To allow its collapse by corruption will solidify the notion that this administration is one where public theft and economic sabotage are the norm.

Now that this scam is exposed, we will watch what the Bureau of Customs, the BIR, the Department of Health and Anti-Corruption Commission will do next.

*      *      *

Email: [email protected]. Follow him on Twitter @aj_masigan