Since the local demand for conventional cigarettes is forecasted to decline in the coming years, the Department of Trade and Industry (DTI) is working on making the country a manufacturing hub for heated tobacco products (HTPs), which has a growing demand. In his panel presentation at the International Tobacco Agriculture Summit on Wednesday, Aug. 2, DTI Undersecretary Ceferino Rodolfo said that “the demand for cigarettes will be on a decline in terms of volume of sales and in terms of revenues according to projections.” Data forecast showed that the volume of cigarette sales will be reduced to 39,058,000 sticks in 2027, compared to 44,474,000 sticks in 2023. Meanwhile, the sales revenue for the cigarettes is expected to be at P449,109,000 by 2027. The decline in conventional cigarettes can be traced to high taxes and shift to HTPs. He noted that the current tax for cigarettes per pack is P60. Taxes imposed per pack of cigarettes is around 47 to 58 percent of its retail price, including the value added tax (VAT), but depending on its brand. However, there is a projection of a 511 percent volume growth of HTPs from 2022 to 2027. HTPs are considered by the World Health Organization - Framework Convention on Tobacco Control (WHO-FCTC) as emerging tobacco products. It is composed of two parts - an insert where the processed tobacco is contained, and a means for heating tobacco. HTPs heat tobacco at lower temperatures (less than 350 degree celcius) than conventional cigarettes. The forecasted global sales revenue of HTPs for 2024 is around $22 billion. From 664.7 million sticks in 2022, HTP sales in the Philippines is expected to reach 4.06 billion sticks in 2027, which is equivalent to P32.8 billion, according to data from Euromonitor. "There seems to be a general consensus that while there is a product that will be declining, there might be a strong opportunity for HTPs," said Rodolfo. At present, Republic Act No. 11900 or the "Vaporized Nicotine and Non-Nicotine Products Regulation Act," enables strict regulation of HTPs that is said to "boost consumer confidence." If HTPs are manufactured in the country, they can be imported in the Association of Southeast Asian Nations (ASEAN) except for Vietnam; as well as Australia, New Zealand, Japan, Korea, and Hong Kong at zero percent tariff duty. "It's good that we have domestic legislation that could already provide good confidence to our consumers when it comes to HTPs, and that there may be companies who are interested in this particular space," Rodolfo added. Rodolfo noted that some multinational corporations (MNCs) have been exploring the opportunities of expanding HTPs in the country, such as Philip Morris Fortune Tobacco Corporation, Japan Tobacco International, British American tobacco, China Tobacco, and locally-distributed HTP brands like Bohem Cigar, Esse and Liqun.

FTAs in tobacco industry

Rodolfo said that tariffs have been seen to play an important role for the Philippines to access international markets. He cited South Korea, which is the country's biggest market for tobacco exports, wherein the ASEAN-Korea Free Trade Agreement (AKFTA) resulted in zero tariffs for tobacco products. The same tariff can be seen in the ASEAN Trade in Goods Agreement (ATIGA) between the country, Thailand, Malaysia, and Myanmar. However, there is a big differential in the regular tariffs that the country imposes, and the preferential rate that the country must be able to get via a trade agreement, he remarked. While the importing countries impose tariffs ranging from 30 to more than 100 percent, the Philippines MFN tariff is considerably low at only three percent, meaning tobacco imports can easily enter the country at very low rates. "I don't know if there's an appetite for the industry to, for example, file a petition to the Tariff Commission to increase tariffs for the MFN," said Rodolfo. Unlike the FTA tariff rates that have been agreed upon by the partner countries, the Philippines' MFN on tobacco products can still be amended, he added. The tariff rates of the Philippines for the FTAs, which range from zero to three percent, can no longer be changed. Since the recent state visit of European Commission President Ursula von der Leyen to the Philippines, DTI is looking at prospective FTAs with the European Union (EU), as well as continuing the FTA negotiations with the United Arab Emirates (UAE) and the non-preferential trade agreement with India. In negotiations, Rodolfo maintains that the DTI bases its terms and conditions on domestic policy, emphasizing their efforts to ensure the fair and level treatment of local and imported tobacco and tobacco products, in respect to the nearly 500,000 tobacco farmers in the country.

Lucrative industry

Tobacco is a highly lucrative global industry that yielded an overall revenue worth $867.6 billion in 2022. The Asia-Pacific contributed 60.9 percent to the total revenue. In 2022, the country has been a net exporter of unmanufactured and manufactured tobacco, reaching US$218.6 million. The Philippines ranked 16th in the world production of unmanufactured tobacco in 2021 (producing 50,931 metric tons), and the 21st in the world exports of tobacco, with an export value of $535.6 million. The local tobacco industry contributed P1.408 billion to the country’s economy in 2022, with tobacco tax revenues reaching P160 billion in the same year. In 2022, the country produced an estimate of 47,730 MT (metric tons), with 66.8 percent of tobacco production taking place in the Ilocos region, followed by Cagayan Valley 24.4 percent. Employment and dependents for the tobacco production segment of the industry was logged at 2.2 million. In terms of exports, the country’s unmanufactured and manufactured tobacco export values increased by 5.5 percent and 5.7 percent per annum in 2018 to 2022, respectively. The types of tobacco mostly exported include virginia and burley, which are Aromatic tobaccos for blended cigarettes; and native tobacco that's used as cigar filler, batek, and snuff.