Manila Bulletin
Philippines
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Excessive taxation of cigarettes and vapes will fuel illicit trade, warns Australian expert
Philippines
National
Excessive taxation of cigarettes and vapes will fuel illicit trade, warns Australian expert
Excessive taxation of cigarettes and vapes will fuel illicit trade, warns Australian expert
Published May 23, 2025 03:01 pm
Rohan Pike, security expert at the Australian Federal Police and the Australian Border Force
Urging the Philippine government to learn from his country’s policy mistakes, an Australian expert has warned that imposing higher taxes on cigarettes and vaping products will fuel illicit trade and undermine tobacco control measures.
“Governments pull the taxation lever to reduce public health risks, curb tobacco use, and generate revenue. In principle, that makes sense. But the reality is annual tax rate increases mandated in both the Philippines and Australia are now producing diminishing returns in government revenues and fueling organized crime,” said Rohan Pike, a security expert with 25 years of police and customs experience at the Australian Federal Police and the Australian Border Force.
Pike was one of the resource personsduring the recent hearing on House Bill 11360 which seeks to curb illicit trade in cigarettes and tobacco products held by the Senate Committee on Ways and Means chaired by Senator Sherwin Gatchalian.
The Bill proposes a schedule of excise tax increases, with 2% increases every even-numbered year starting January 1,2026and 4% increases every odd-numbered year beginning January 1, 2027.
It also provides for a unified excise tax rate for freebase and nicotine salt vapor products.
Pike has led successful and high-profile international cases against fraud, trade crime, foreign bribery, corruption, and money laundering.
He has provided advice on fighting illicit trade to the governments of Australia, Papua New Guinea, Timor Leste, and Pakistan, among others. He helped the Australian Retailers Association establish Australians to Stop Counterfeiting and Piracy (AUSCAP), a coalition of industry groups, businesses, and trademark owners dedicated to stopping illegal trade.
Australia, which has one of the most restrictive tobacco and vaping policies in the developed world, has raised excise taxes on tobacco by 800 percent since 2010, according to Pike.
As a result, a pack of legal cigarettes in Australia now costs three times more than a pack of illicit cigarettes. In the Philippines, a pack of smuggled cigarettes costs as low as P40, which is almost three and a half times cheaper than a pack of legal cigarettes that retails for around P140.
“Your country’s increasing adolescent smoking rates suggest that the price disparity between legal and illicit cigarettes is attracting new smokers and driving the black market,” Pike said.
Information presented during a previous hearing revealed that adult smoking rates in the Philippines surged from 18.5 percent in 2021 to 23.2 percent in 2023 after plateauing for nearly a decade.
Illicit trade also impacts government revenues, Pike said. Australia’s excise tax collections dropped precipitously from $16.3 billion in 2020 to just $7.4 billion—a 55% decrease.
The Philippine government’s excise tax collections, which increased substantially in the first few years after the enactment of the landmark Sin Tax Law, are now in sharp decline.
Collections decreased from P176 billion in 2021 to P160 billion in 2022 and further to P135 billion in 2023. In 2024, collections dropped further to P134 billion.
Local e-cigarette industry representatives present during the hearing estimated that illicit vaping products account for up to 80 percent of the market in the Philippines.
Pike said Australia has a worse situation. “Australia’s failed policy has seen a surge in illicit cigarette sales to over 40% and illicit vape sales to over 95%—and that’s after a huge increase in law enforcement funding and focus.”
Australia’s flourishing illicit trade in cigarettes and vapes is also fueling organized crime and violence.
In the past two years alone, Pike said his home state of Victoria has seen over 200 arson attacks on shops and warehouses tied to illegal tobacco.
There have been homicides, kidnappings, extortion, armed robberies of legal tobacco—all generated by the extreme value of tobacco products and the huge profits that criminal gangs are fighting over.
Pike recommended a three-pronged, proportionate, and evidence-based approach to counter illicit trade on tobacco and vaping products in the Philippines.
First, set an appropriate tax rate to suppress the key driver of illicit trade.
Second, strengthen enforcement and prosecution.
Third, consider tobacco harm reduction strategies.
He said that the annual excise tax rate increases in the Philippines, like Australia, have resulted in diminishing returns in government revenues and perpetuating organized crime.
“We have already pulled that lever too far and have unbalanced the market. You have a chance to prevent making the same mistake with vapes as you have with cigarettes,” he said.
“The revenue returns for both of our countries have followed a classic “Laffer Curve” response showing that the sweet spot when the excise rate for tobacco maximisedthe returns happened some years ago. Economic theory shows that further increases to taxes will not increase revenue, it will only accelerate the decline.
Both of our governments have mis-read the effect the explosion of the illicit market would have on returns,” he added.Pike said that Australia and the Philippines face similar difficulties in protecting borders as both have vast coastlines with many remote locations that are able toact as windows for illicit products with The Philippines being located right in the middle of some of the key source countries of illicit tobacco including China, Cambodia, Vietnam and Indonesia.
“While this new tobacco bill includes some welcome enhancements for law enforcement, the greatest help you could provide them is to freeze or reduce the excise rate thereby suppressing the key driver. Prevention is always better than the cure,” he said.
Pike also urged the adoption of harm reduction strategies by incentivizing reduced-risk nicotine alternatives through proportionate tax measures combined with education campaigns.
“The Philippines has the chance to get this right. By taking a proportionate, evidence-based approach, the Philippines can reduce smoking, stabiliserevenue and keep its citizens safer and healthier,” he said.