4 MIN READ
By SHERWIN DE VERA
www.nordis.net
BAGUIO CITY—A global watchdog has raised an alarm about how major cigarette companies in the Philippines may be helping fuel the illegal tobacco trade and potentially avoiding full tax payments, putting public health programs and government revenues at risk.
In a recent report, industry accountability advocate STOP noted that packs of leading cigarette brands were sold without proper tax stamps and at prices too low to comply with legal tax thresholds. The findings also cited an independent study that contradicts the tobacco industry’s narrative that rising taxes are the main driver of illicit trade.
These come as tobacco companies continue to lobby against tax hikes by blaming smuggling and illegal trade, and the recent raid of a massive illegal cigarette factory in Mexico, Pampanga.
“Increasing tobacco taxes has helped reduce smoking rates in the Philippines, so it is not surprising that the industry is trying to reverse these measures,” said Jorge Alday, Director of STOP at Vital Strategies.
“Independent research shows that tobacco taxes are not the main driver of illicit trade and suggests the industry itself may be part of the problem,” Alday added. “Cutting taxes would primarily benefit tobacco companies and risk undoing major health and equity gains. Filipinos deserve better.”
In 2024, tobacco taxes generated Php 134.52 billion, a significant portion of which was allocated to public health services. However, the government is also losing billions, with the BIR estimating that tax revenue lost to illicit trade reached P25.5 billion in 2023 alone.
Illicit tobacco trade accounts for about 10% of global cigarette consumption, causing $40–50 billion yearly in lost tax revenue.
False narrative?
STOP cited the empty pack audit by Action for Economic Reforms (AER) that assessed the illicit tobacco trade at the retail level by surveying 1,000 sari-sari stores in eight major urban centers nationwide.
AER found over 90% of cigarette packs from sari-sari stores were from brands registered with the Bureau of Internal Revenue, indicating Filipino smokers mainly buy legal, major tobacco brands, not unregistered ones.
The study identified three primary ways in which illicit trade manifests: tax evasion (underpricing), tax stamp violations, and smuggling of unregistered brands. It noted that illegal cigarette sales vary regionally despite uniform taxes, challenging the industry narrative that high taxes mainly drive smuggling.
AER stated: “Based on the survey results and stakeholder consultations, the main driver of illicit tobacco trade in the Philippines is weak enforcement, and not high tax rates.”
Taxing and pricing issues
The report noted that leading brands—like Philip Morris Fortune Tobacco Corp. (PMFTC) and Japan Tobacco International (JTI)—lacked excise tax stamps or had counterfeit ones. While this cannot confirm whether the packs were genuine, stamping violations indicate internal lapses in accountability.
Tax stamps are proof that cigarette manufacturers paid the right taxes before selling their products.
“Without a tracking and tracing system, authorities tend to engage with the companies directly to determine if packs are counterfeit. This is problematic because brand owners, if complicit in illegal activity, would have a clear incentive to falsely identify products as counterfeits in order to conceal their own illegal business practices,” STOP stated.
PMFTC, a joint venture between Philip Morris International and Fortune Tobacco Corp., held a 61% market share in 2022. JTI held 38% after acquiring Mighty Corporation in 2017. Combined, their industry revenues totaled around US $7.3 billion in 2024.
Some cigarette brands were also retailed for less than Php 71.42—below the level at which excise and VAT can be fully paid—raising suspicions of tax evasion. Researchers observed these low prices in formal retail outlets, indicating failures of legal compliance rather than informal market behavior.
Clear threat
These pricing strategies, the report notes, not only make tobacco more accessible to young people and low-income communities but also deprive the government of critical revenue.
Although overall smoking prevalence in the country dropped from nearly 30% in 2009 to 20.4% in 2023, nearly one in ten children aged 10 to 14 still use tobacco. The report underscores the role of high tobacco prices and taxes in deterring youth smoking and reducing long-term health burdens.
Beyond economic concerns, this also puts public health at risk because of the unregulated nature of these products. Laboratory analyses have shown that counterfeit and smuggled cigarettes can be contaminated with lead, insect parts, rat droppings, and synthetic drugs.
A 2023 study emphasized that tobacco-related diseases kill 87,600 Filipinos annually, costing the country approximately P188 billion per year in healthcare expenditures and lost productivity.
The National Tobacco Administration has warned that the proliferation of the illicit cigarette trade in the Philippines is putting at risk the livelihoods of some 2.2 million individuals and their families, with over 430,000 farmers, farm workers, and their families directly affected by the flood of untaxed products.
In 2024, the Philippine Tobacco Growers Association estimates that local farmers lost nearly ₱1 billion due to declining tobacco demand, and in 2025, about ₱978.44 million, about ₱17,000 per farmer.
Enforcement, not rollbacks
The report warns against reducing tobacco taxes, arguing that such moves could reverse gains achieved through the Sin Tax Reform Act of 2012, which significantly lowered smoking rates and expanded public healthcare funding.
“Governments should view industry arguments with skepticism,” said Dr. Allen Gallagher, Co-Director of the Tobacco Control Research Group at the University of Bath and a report contributor. “This report highlights the need for stronger enforcement, not lower tobacco taxes, to address illicit trade.”
He urged the government to ratify the World Health Organization’s Protocol to Eliminate Illicit Trade in Tobacco Products and implement an independent track-and-trace system, currently under development in the Philippines. These measures, he said, would help trace illegal products and ensure tax compliance.#nordis.net
