The Federation of Philippine Industries (FPI) has warned that cigarette smuggling, which caused the government to lose P26 billion in revenues last year, will only get worse over time if the government does not do more to stop the illegal trade.

The business group reiterated the need for a comprehensive approach including maritime patrols, international collaboration, and increased consumer vigilance, to curb cigarette smuggling.

Based on the "Illicit Cigarette Trade in the Philippines: Economic and Social Impacts of Weak Regulatory Enforcement” study by the University of Asia and the Pacific (UA&P), FPI said that illicit cigarette trade reduced the gross domestic product (GDP) by 0.39 percent over four years from 2018 to 2022.

FPI Chairman Jesus Arranza stressed that the loss would fund 57,000 socialized housing units, 8,642 classrooms, and 75 public hospitals.

The study also revealed that the trade also resulted in a 0.63 percent decrease in household income and a 4.9 percent drop in employment.

Aranza warned that if not addressed, the illegal cigarette trade could lead to even more losses to the government and industries that have served as the backbone of the economy.

“The issue of smuggling ay talamak sa ating bansa [is rampant in our country]. Industry is the backbone of our economy. What will happen to our country? Loss of employment, loss of economy. I am happy to find the outcome [of the study], and people are realizing the effects,” Arranza said.

The comprehensive study, conducted under the leadership of economist Alyssamae Nuñez, thoroughly discussed cigarette taxation and its pivotal role in discouraging smoking.

However, despite the significant progress achieved through tax reforms, the illicit cigarette trade remains a persistent challenge, as she noticed a rise in illicit trade and a decline in retail trade.

“There is a direct correlation between the imposition of new taxes and the rise of illicit trade,” she said, adding that the government must leave no stone unturned “to provide legitimate industry players with a level playing field and to preserve consumer rights,” Nuñez said.

Instead of imposing new taxes on an industry experiencing illicit trade, Nunez said the government can complement its efforts by collaborating with other governments and institutions, engaging with international bodies and conventions, and promoting awareness of the adverse impact of illicit trade on nations and their economies.

Aside from their negative impact on the economy, she said illicit cigarettes can also lead to unforeseen health risks due to substandard production and distribution.

Moreover, high cigarette taxes have heightened price sensitivity among consumers, intensifying the demand for cheaper alternatives and exacerbating illicit trade.

A moderated panel discussion to tackle various issues was also held, featuring speakers from different sectors, including Nuñez, University of the Philippines-Los Baños Agricultural Economist Dr. Julieta Delos Reyes, and National Federation of Tobacco Growers President Bernard Vicente.

The panel also included Philippine Coalition of Consumer Welfare Inc. Consumer Sector Chairman and Founder Ric Samaniego, and Economist and Security Sector Representative Lt. Don Stanley Dalisay.

To combat illicit cigarette trade, the panel proposed a whole-of-society approach,  including allocation of funds for the conduct of strict patrol of the country’s maritime boundaries, end-to-end collaboration between governments of other countries, rationalization of the punishment system, and vigilance among consumers, among others.