Local tobacco taxed more than smuggled ones

Tax-paid local cigarets cost P140 per pack while those smuggled or untaxed are sold at P66.15 per pack, with the P100 per pack difference endangering the profitability and sustainability of homegrown tobacco.

Thus, the Philippine Tobacco Institute  asked the government to calibrate the taxes for homegrown tobacco against the smuggled ones and called for tighter enforcement of laws against smuggling of tobacco products and alternatives to sustain the local economy and the very livelihood of thousands of tobacco farmers.

This would also enable the government to collect adequate sin taxes to fund its vital programs and projects.

“There is an urgent need to calibrate the tax rate to an optimal level and enhance enforcement and prosecution efforts so we can fully realize the benefits of the Sin Tax Law for both public health and government revenue,” PTI said in a statement released on Tuesday.

The PTI said illicit tobacco accounted for about 18.2 percent  in 2024 of the market, a record which is an increase from 5.4 percent  in 2020.

Taxes make illicit tobacco, whether smuggled or untaxed, attractive to consumers, it said, with tax-paid cigarets selling for around P140 per pack, up to P100 more expensive than the untaxed varieties.

The PTI said untaxed cigarettes sometimes sell for less than the excise tax rate of P66.15 per pack.

“There is overwhelming evidence that illegal tobacco and vape products are exploding across the country,” PTI President Jericho B. Nograles said in an interview.

“With annual tax hikes making legal products less affordable, consumers are not quitting — they’re switching. Worse, these illicit products are now being openly sold to minors and widely distributed online with little to no regulation,” he added.

Under current law, tobacco taxes are set to increase 5% annually.

In February, Congress passed House Bill 11360 on third reading, amending the National Internal Revenue Code to impose structured tax hikes on tobacco products.

“The policy to reduce smoking through annual tax increases has failed. Smoking incidence has deteriorated to pre-2015 … Instead of purchasing legal cigarettes, consumers have switched en masse to cheaper illicit cigarettes. This has caused government revenue to fall by over P40 billion (2024 vs. 2021),” said Nograles.

He noted that the illicit tobacco trade is “destabilizing government revenue, undermining public health goals, and displacing legitimate tax-paying industry volumes.”

The Bureau of Internal Revenue reported that the tobacco tax component of excise taxes declined by 0.35% to P134.43 billion last year, against the P176 billion collected in 2021.

The Department of Finance estimates that the government foregoes revenue of P52 billion a year due to the illicit trade.