The Philippines lost an estimated P141 billion in government revenue over the past two years due to the booming illicit tobacco market, with illegal e-vapes now dominating local sales at the highest rate among major Southeast Asian economies, according to a new regional study.

A joint report by the EU-ASEAN Business Council and Euromonitor International showed that 86 percent of e-vapes sold in the Philippines are illicit, surpassing neighboring ASEAN markets where vaping products are legal.

The report estimated that illicit e-vape sales alone cost the Philippine government around P23 billion in lost revenues from 2024 to 2025, as smuggling networks and unregulated online sellers rapidly expanded operations.

Researchers warned that the illicit tobacco trade is becoming a growing economic and security threat across Southeast Asia as governments struggle with weaker revenues, inflation pressures, and supply chain disruptions linked to the Middle East conflict.

“The scale of illicit trade across ASEAN is often sorely underestimated — and, more worryingly, growing at an alarming pace,” said EU-ABC Executive Director Chris Humphrey.

“Its impacts are wide-ranging, spanning economic, public health and security challenges,” he added.

Humphrey said the Philippines’ illicit tobacco problem is deeply connected to regional smuggling networks operating across Southeast Asia.

“Illicit trade problem here in the Philippines is not a Philippines problem, it is illegal cigarettes coming into the country, smuggled into the country from other parts of the world and other parts of the region,” he said.

The study found that the Philippines tied with Malaysia as the second-largest source of illicit tobacco-related revenue losses in ASEAN, behind Indonesia.

Across the ASEAN-6 economies, illicit tobacco activities generated an estimated $12.6 billion in revenues over the past two years, with illegal cigarette sales rising 14 percent and illicit vape sales jumping 24 percent in the past year alone.

The report said lower prices and easy access continue to fuel consumer demand for illegal tobacco products, while weak regional enforcement and interconnected trade routes enable smuggling networks to operate across borders.

Investigators identified several Southeast Asian freeport zones and ports, including the Subic Bay Freeport Zone in the Philippines, as key transit hubs used by illicit traders to avoid customs duties and regulatory checks.

Humphrey also warned that strict bans without effective enforcement could push consumers further into underground markets.

“Through sales through legitimate shops, you’re forcing people into the illicit market and you’re forcing them to buy products which are probably inferior and contain more toxic chemicals,” he said.

He pointed to neighboring countries where vape bans failed to eliminate usage, despite tighter enforcement.

“Singapore has banned vapes, Thailand has banned vapes, they’re still widely used,” Humphrey said.

“That means they’re buying them illegitimately through illegal sources and that means there’s no control over what those products contain or where the money is going to,” he added.

The report warned that beyond lost tax revenues, the illicit tobacco market weakens supply chain integrity, creates unfair competition for legitimate businesses, and raises concerns among foreign investors about governance and enforcement standards in the region.

Business groups behind the report urged ASEAN governments to strengthen regional cooperation, modernize customs monitoring systems, and improve intelligence-sharing mechanisms to combat illicit trade more aggressively.