The Department of Finance (DOF) today expressed support to the proposed suspension of the annual tobacco excise increases that spurned the rise in illicit cigarette trade causing the continuing decline in revenue collection.
Representative Joey Sarte Salceda, chairperson of the House Committee on Ways and Means, said they are inclined to recommend a two-year moratorium on the tax hike to stabilize tax revenue collection.
Both the DOF and the Bureau of Internal Revenue (BIR) supported the proposal citing the drop in tobacco excise tax collections from P176 billion in 2021, down to P160 billion in 2022, 135 billion in 2023 and P130.9 billion in 2024.
Commissioner Romeo Lumagui Jr. said that for 2024, the revenues from tobacco incurred a downfall of 29%, which translates to P54.4 billion against target. He mentioned that the rise in illicit cigarette trade as among the reasons of the revenue decline.
Testifying during the hearing, DOF Assistant Secretary Karlo Fermin Adriano said they have no objections” and are studying the optimal tobacco excise tax rate.
Currently, the law provides 5% annual increase in cigarette excise tax. Salceda proposed that it should be “6% every two years.”
Representative Mikaela Angela Suansing said that the uptick in the usage and the prevalence of illicit cigarettes since 2021 correlates to the downtrend in revenue collection which decreased cumulatively by P41 billion from 2021 to 2023.
Supporting the proposal for tax moratorium, Suansing said it, “will allow the stabilization of the prices among the legitimate cigarettes in order for it to be able to compete with illicit and electronic cigarettes.”
She said the moratorium would do a lot in terms of preventing the gap between the prices of manufactured and legitimate cigarettes versus the prices of illicit. Suansing who represents the 1st District of Nueva Ecija noted that it is the gap in prices that is driving that shift from legally manufactured cigarettes to illicit cigarettes.
For her part, Representative Kristine Singson-Meehan said the implementation of Republic Act 10351, or the the Sin Tax Law, may be considered as highly successful with the Philippines achieving its twin goals of lowering consumption and increasing revenues. From 2019 to 2023, the government collected Php769 Billion versus Php 532.5 Billion from 2014 to 2018 while steadily decreasing consumption.
Singson-Meehan who represents the 2nd District of Ilocos Sur, however, noted that “We have seen the steady decline of government collections from tobacco excise tax, severely impacting government revenue. This decline in government revenue may largely be attributed to the continuous rise of cheap, smuggled and non-tax paid tobacco and vapor products.”
The cumulative losses, had it been collected, should have supported universal healthcare and development of farming communities, she said.
Suansing proposed, “In order to continue to reap the benefits of our sin tax laws, excise tax rates must be revisited. We have reached the optimal tax rate in 2021, when our government collection for tobacco excise tax was at its highest with a collection of P176billion. Unfortunately, since then and despite yearly tax increases, we have seen the steep and continuing decline in excise tax collections with 2023 recording only P135 billion—P15 Billion less than the original target set for the BIR.”
She said, “While it is in the country’s legitimate interest to impose and collect higher taxes to sin products, the increase in the amount of excise taxes imposed on registered cigarette products unintendedly resulted in the proliferation of illicit and counterfeit products due to their low-entry point and affordability.”
Citing a study conducted by Euromonitor on the historical incidence of illicit cigarettes traded in the Philippines she said it showed that the total industry volume of illicit trade in the country almost doubled from 10.4% in 2019 to 19.9% in 2024.
Former Representative Jericho Nograles, speaking for the Philippine Tobacco Institute during who represents the tobacco growers, manufacturers, marketers, distributors, and sellers of leaf, tobacco products, and novel tobacco products the hearing noted that detrimental impact of illicit trade to this vital sector.
Also quoting the Euromonitor, he said that “by the end of 2025, 19% of the domestic market will consist of illicit products. In Mindanao alone, 51% of cigarettes sold are illicit, with some areas reporting rates exceeding 90%. Meanwhile, North and Central Luzon experience an illicit trade incidence of 12.8%, while Southern Luzon reports 5.4%. Alarmingly, the rate of illicit trade is increasing by 3% to 8% annually.”
He underscored that, “Illicit trade thrives due to the availability of untaxed cigarettes sold at a fraction of the price of legitimate products. Legal cigarettes are up to five times more expensive than their illicit counterparts. This price disparity is fueled by illegal importers, manufacturers, and traders who evade excise taxes. As a result, untaxed cigarettes flood the market, undermining government revenue and reducing funds critical for public health programs and other government initiatives.”
Meanwhile, Bienvenido Oplas Jr, president of Minimal Government Thinkers and an international fellow of Tholos Foundation who have studied and written about the trend of tobacco excise tax in the Philippines suggested the optimal rate for a pack of cigarettes is P50.
“That is the rate that gave us P176 billion. Any amount, any tax rate higher than P50 gave us inferior revenues.”
He said moratorium is not enough and instead recommended a tax rollback to P50 if the government wanted to hit P176 billion in revenue.