ILLICIT tobacco products rose to a “record high” of 18.2 percent in 2024 from a single digit number of 5 percent in 2020, Malaya Business Insight reported last week, quoting the Philippine Tobacco Institute (PTI).
The organization of legitimate tobacco manufacturers, importers, exporters and growers in the Philippines also warned that the staggering 240 percent jump in illegal tobacco may soon become “irreversible” if left unchecked.
In 2023, the illicit incidence was recorded at 13.2 percent. PTI identified Mindanao as the hotbed of illicit cigarettes with a 50 percent incidence followed by Central Luzon.
“Today, one in every five cigarettes sold in the country comes from illicit sources,” the group’s president said in a statement.
To a non-smoker, the Malaya news report bears no significance since the rise in illegal cigarettes does not affect him or his family. As long as basic goods remain affordable, there’s no need to raise a howl of protest.
But as more illegal non-taxed cigarettes enter the market, there will be less funds for social-health and infrastructure programs. Smuggling also causes a massive strain in government’s ability to collect the right amount of taxes with utmost efficiency.
‘Fixing the leakage in tobacco tax collections would further help government inch closer to its target.’
Taxes derived from cigarettes are used to fund the Universal Health Care for all Filipinos. Under Republic Act 11346, 50 percent of tobacco excise taxes are earmarked for health programs.
Raising the alarm over this sounds an old refrain.
According to the Federation of Philippine Industries (FPI), more than P2 trillion worth of illicit goods, including counterfeit products, general merchandise, agriculture items and cigarettes – which have an aggregate tax invoice of P250 billion — flood the country each year.
The Bureau of Customs last year seized P85.167 billion worth of smuggled goods that broke the record in 2023. The Department of Agriculture confiscated roughly P2.8 billion worth of smuggled agricultural goods in 2024, 51.3 percent higher than in 2023.
The rising incidence in illegal tobacco alone is already resulting in “severe fiscal consequences” that tobacco excise haul has dropped to P134 billion in 2024 from P176 billion in 2021.
The Department of Finance puts the annual revenue losses from illicit tobacco at P52 billion a year, a little conservative than the projected P60 billion of the House ways and means committee.
Tax collections from sin products represent a significant slice of the government’s tax pie that a consistent drop creates big ripples in the revenue stream.
The Bureau of Internal Revenue (BIR) already collected P690 billion in Q1 of 2025, which still considered a drop in the bucket if juxtaposed to its P3.23-trillion target for the entire year.
The BIR, however, is counting on a raft of tax measures due for legislation to plug loopholes and boost its chances of meeting its goal.
BIR’s leadership has been also very active in its drive against illicit tobacco, with almost weekly raids and seizures.
But enforcement actions presuppose that the illicit cigarettes that evaded taxes have been out in legitimate channels and those being raided are just the unsold stocks in the illicit inventory.
This year, the Marcos administration targets to collect P4.64 trillion in total revenues, which would account for 16.2 percent of the country’s gross domestic product.
Fixing the leakage in tobacco tax collections would further help government inch closer to its target. But with no hard and drastic action against syndicates driving the illicit tobacco trade, there will always be a gaping hole in the government’s pocket.
