Mexico’s proposed 2026 federal budget includes a steep hike in tobacco taxes that industry groups warn could expand illicit trade and harm small retailers. The plan would raise the ad valorem IEPS tax from 160% to 200% and gradually increase the per-cigarette quota from MX$0.61 ($0.033) to MX$1.15 ($0.062) by 2030.
Officials say the measure aims to reduce smoking and fund healthcare, but trade associations argue it will instead push consumers toward cheaper illegal products. Legal cigarette packs could reach MX$100 ($5.40), while contraband versions sell for just MX$20–25 ($1.08–1.35), creating strong incentives for black-market purchases.
According to the National Association of Small Traders (ANPEC), the price gap threatens 1.2 million small stores that support about 5 million people, as illicit sellers undercut legal retailers. The Confederation of Industrial Chambers (CONCAMIN) estimates tax evasion from illegal cigarettes costs the government MX$13–15 billion annually, with up to half of the tobacco market now illicit.
Government data shows tobacco tax collections have fallen since 2019, dropping 6.9% year-on-year in 2024 and accounting for just 0.8% of total state income.
The Senate is expected to debate and vote on the proposal starting October 20.
