Seeking a “sweet spot,” the Philippines’ government is considering a moratorium on tobacco excise tax hikes in order to curb illicit trade and protect its revenue. Currently, the excise tax is P60 ($1.03) per pack and grows 5% annually. A pack of illicit cigarettes can be purchased for P40 ($0.69) per pack, less than the tax itself.
According to the Food and Nutrition Research Institute, smoking in the country increased from 18.5% in 2021 to 23.2% in 2023. Over the same period, illicit cigarettes increased 13.6% to 19.8%. Despite the increase in smoking, the Bureau of Internal Revenue has watched its collected excise taxes steadily decline each year, going from P176.48 billion ($3 billion) in 2021 to P134 billion ($2.3 billion) last year, P51 billion below budget.
“Illicit trade thrives due to the availability of untaxed cigarettes sold at a fraction of legitimate products,” said Jericho Nograles, president of the Philippine Tobacco Institute (PTI). “Legal cigarettes are up to five times more expensive than their illicit counterparts.”
Both the PTI and the National Tobacco Administration (NTA) supported the tax moratorium for 2026, saying it is a “practical” and “targeted” solution against illicit cigarette trade.
“By pausing the excise tax increase for 2026, we can temporarily stabilize the market and reduce the price disparity between legitimate and illicit cigarettes,” NTA administrator and CEO Belinda Sanchez said. “This pause will help legitimate manufacturers regain competitiveness, which is crucial to restoring demand for locally produced tobacco leaf for local consumption.
“The widening gap between the prices of legitimate and illicit cigarettes, aggravated by successive excise tax increases, has incentivized the proliferation of smuggled and counterfeit products.”
While the moratorium has been discussed for some time, the House of Representatives recently passed on second reading House Bill 11360, which would replace the moratorium and instead impose lower tax rates on tobacco products, proposing a schedule where the excise tax is raised 2% in even-numbered years and 4% in odd.
Pointing to the billions they are losing in revenue, Department of Finance Secretary Ralph Recto said they are open to all proposals and “hopes the government can find a sweet spot.”
