The Philippine Tobacco Institute (PTI) expressed support for a bill filed in Congress to arrest the rising illicit trade of tobacco resulting in declining collections, citing experiences of neighboring countries which suspended annual increases in tobacco excise taxes to stabilize the market.
PTI President Jericho “Koko” B. Nograles (Wikiwand)
“By pausing the annual excise tax increases, the prices of legitimate products such as cigarettes can stabilize and decrease the incentive for consumers to purchase illicit smuggled products,” PTI President Jericho “Koko” B. Nograles said during a recent Senate Ways and Means Committee hearing probing the issue of tobacco illicit trade.
Senate Ways and Means Committee Chairman, Senator Sherwin Gatchalian, stressed the urgent need to curb the growing illicit cigarette trade, which has led to what he termed a “lose-lose situation” for the Philippines.
Faced with rising illicit cigarette trade and declining excise tax collections, house leaders filed on Tuesday House Bill (HB) 11279 to impose an excise tax increase moratorium on tobacco to drive consumers away from smuggled cigarettes and strengthen enforcement against illicit trade.
The bill proposes a temporary one-year suspension of the automatic annual increase of five percent tax imposed among tobacco products, heated tobacco products, vapor products, cigars, and cigarettes.
Sponsors of the bill include Deputy Speaker and Isabela 1st District Rep. Antonio “Tonypet” Albano, Deputy Speaker and Ilocos Sur 2nd District Rep. Kristine Singson Meehan, Ilocos Norte 2nd District Rep. Angelo Marcos Barba, Kabayan Party-list Rep. Ron Salo, Ifugao Lone District Rep. Solomon Chungalao, and PBA Party-list Rep. Margarita Nograles-Almario.
Tobacco excise tax collections have steadily declined year-on-year from PHP 176 billion in 2021 to P130 billion in 2024, even as adult smoking prevalence rose from 19% in 2021 to 24.4% in 2023, according to data from the Food and Nutrition Research Institute (FNRI).
Nograles pointed to the experience of Singapore, which implemented a similar moratorium for 8 years, successfully stabilizing markets and increasing government revenues.
According to a study published in the World Customs Journal by economists Adrian Cooper and Daniel Witt, the Singaporean government raised excise duty taxes on cigarettes from SGD150 per 1,000 cigarettes to SGD352 — the highest in Asia at the time. While revenues from excise collections initially increased, it then declined by 20% between 2003 to 2006.
Illicit trade surged during this period. In response, the Singaporean government froze excise taxes at 2005 levels and invested heavily in enforcement. The strategy shift led to positive outcomes, with duty-paid cigarette volumes recovering after 2006 and the illicit market share dropping from 22% in 2006 to 15.9% by 2010.
Gatchalian said, “The reason we impose excise tax on tobacco products is so we can have better health outcomes. But smoking prevalence has now reversed. We’re now in a lose-lose situation because smoking prevalence is going up, tax collection is going down.”
Senator Gatchalian urged the Department of Finance (DOF) to take a proactive stance, warning of the growing threat posed by the illicit tobacco trade. “If we don’t focus our attention on this, we’ll end up with a scenario where illicit trade might be bigger than legal activities,” he said.
“From the standpoint of this committee, revenue is going down, but smoking prevalence is going up, so where are the cigarettes coming from?” Gatchalian said.
According to Bureau of Internal Revenue’s (BIR) Head Revenue Executive Assistant Don Galera, last year’s total tobacco excise tax collection amounted to P134 billion, well behind the agency’s target collection of P185 billion in 2023.
Gatchalian noted the troubling trend in the rising volume of illicit tobacco seized despite increased enforcement, underscoring the need for new approaches to address illicit trade and ensure stable revenue streams.
"In my opinion, enforcement is not enough. We have to look at the other causes of illicit trade in our country. We cannot ignore the theory of incentives given the significant price difference between illicit cigarettes and legitimate ones," he added.
"We must recognize the harm this causes - not just in lost revenue but also on health risks, as these activities operate under the radar," Gatchalian said.