The scale and spread of illicit tobacco and vape products across the Philippines have surpassed what law enforcement can handle, the Philippine Tobacco Institute (PTI) said.

During a recent Senate Committee on Ways and Means hearing, PTI President Jericho B. Nograles admitted that enforcement efforts alone were insufficient to combat the growing issue of illicit cigarettes and vapes.

“While we commend the efforts of the Bureau of Customs (BOC), Bureau of Internal Revenue (BIR), and Department of Trade and Industry (DTI) for their ongoing enforcement operations, enforcement alone is not enough. We need a more comprehensive approach to address the root causes of illicit trade,” Nograles said.

He pointed to several factors contributing to the persistence of illicit trade, including the country’s geographical challenges, proximity to source countries known for illicit products, and the high profitability of smuggling activities.

Data from global research firm Kantar, presented during the hearing, confirmed the rise in illicit cigarette trade. Between 2020 and 2024, the share of illicit cigarettes increased from 5.4 percent to 16.4 percent, a more than 200 percent surge.

Kantar also highlighted the significant price disparity between legal and illegal cigarettes. In 2024, a nationwide survey found that the average price of legal cigarettes, including taxes and VAT, was P170.00 per pack. In contrast, illegal cigarettes were priced at P78.40 per pack, creating a price gap of nearly P100.00, which continues to drive consumer demand for illegal, cheaper alternatives.

“We need to sound the alarm. Illicit trade is a lose-lose situation for government revenues and public health goals,” said Senator Sherwin Gatchalian. “The Sin Tax Law’s gains are being eroded, reversing progress in reducing smoking prevalence and generating revenue. We are back to square one.”

Gatchalian cited data from the Food and Nutrition Research Institute (FNRI) and BIR, noting that tobacco excise tax collections fell from P176 billion in 2021 to P130 billion in 2024. Meanwhile, adult smoking prevalence rose from 19 percent in 2021 to 24.4 percent in 2023.

During the hearing, the Committee on Ways and Means proposed several measures to address the issue, including:

• Strengthening collaboration between law enforcement agencies and Local Government Units (LGUs).

• Imposing a unified tax rate on all vapor products.

• Mobilizing the Anti-Money Laundering Council (AMLC).

• Convening the Anti-Agricultural Economic Sabotage Council.

• Enhancing enforcement against e-marketplaces.

• Improving prosecution and conviction rates by the BOC and BIR.

PTI supported these proposals and suggested a review of the current tax system.

“To effectively tackle illicit trade, we need to revisit the current tax structure. An optimal tax rate can balance the objectives of raising revenue and reducing tobacco consumption while minimizing unintended consequences such as smuggling,” Nograles said.

Minimal Government Thinkers President Bienvenido Oplas also weighed in, suggesting that the optimal excise tax rate for cigarettes is P50.00 per pack, a level at which government revenues peaked at P176 billion. He noted that subsequent annual tax increases have coincided with a nearly P50 billion decline in revenues and rising smoking prevalence, driven by a shift to illicit products. In some areas, illicit cigarettes are sold for as little as P40.00 per pack.

For 2025, the excise tax rate for cigarettes is set at P66.15 per pack, with an annual increase of 5 percent.

“Pausing the annual tax increases and stabilizing the legitimate market can help reduce the monetary incentives for smugglers and criminal groups to trade in illegal products,” Nograles said. “By calibrating the tax rate to an optimal level and enhancing enforcement and prosecution efforts, we can fully realize the benefits of the Sin Tax Law for both public health and government revenues.”