Billion-Peso Illicit Tobacco Trade Threatens PH Economy

Unchecked illegal tobacco trade involving billions of pesos has been significantly harming the government’s revenue collection and could even undermine the country’s fiscal stability.

The illicit tobacco trade now operates as a three-pronged menace through direct smuggling, transshipment, and illegal manufacturing. (Photo: Bureau of Customs)

This was highlighted in a recent hearing of the House of Representatives spearheaded by the Ways and Means Committee, following alarming incidents involving foiled attempts to smuggle large volumes of tobacco products.

At the start of the year, authorities led by the Bureau of Customs (BOC) and the Philippine National Police Highway Patrol Group (HPG) intercepted 32 trucks loaded with contraband cigarettes in Batangas City and Malabon City.

The intercepted contraband was valued at approximately P2.6 billion.

This would have amounted to nearly P1 billion in excise tax losses had these entered the market, said Committee Chairman and Marikina City 2nd District Rep. Miro Quimbo, who filed the House resolution seeking a probe into the illicit tobacco trade in the country.

Quimbo noted that recent government data showed more Filipinos have taken up smoking in recent years.

“In 2021, there were about 500,000 young people smoking. By 2023, that number had doubled to one million, with many already addicted. Among adults, the national survey showed that nearly four million new smokers were added in just two years,” he said.

Noting that tax rates for cigarettes, heated tobacco, and vape products increase by 5 percent annually, he said collections should have risen alongside the increase in smokers.

Despite the rise in both the number of smokers and excise tax rates, however, excise tax collections from tobacco products have continued to decline.

The Department of Finance (DOF) said during the hearing that excise tax collections on tobacco products have steadily declined in recent years due to smuggling.

Excise tax rates on cigarettes and vape products are based on the schedule prescribed by law through 2026.

The government collected P174.6 billion in excise taxes on tobacco products in 2021.

“There’s a declining trend starting in 2022 until 2024,” the DOF said, noting that collections dropped to P159.37 billion in 2022, P137.82 billion in 2023, and P132.26 billion in 2024. Full-year data for 2025 is not yet available, it added.

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“Illicit tobacco trade is a direct threat to both our fiscal stability and our public health mandates. Every smuggled pack represents a direct theft from healthcare funds,” the DOF pointed out, noting that excise taxes finance a sizable share of government health programs.

The Philippine Tobacco Institute, also during the hearing, said the government may have lost as much as P172 billion in tobacco excise tax collections due to smuggling from 2020 to 2025, and that as much as 20 percent of cigarettes sold are illegal.

Quimbo described the illicit tobacco trade in the Philippines as the “new POGO” because of its scale and impact, referring to Philippine offshore gaming operators. Illegal POGOs were outlawed last year by the Marcos administration, which cited the industry’s links to alleged criminal activities.

“Contraband cigarettes are not a new problem. However, what is new and deeply alarming is the scale, frequency, and brazenness of the situation today. It has become a major criminal enterprise akin to POGOs. They have widespread operations from Luzon to Mindanao, there are foreigners involved, and there are Filipino backers,” Quimbo said.

He cited reports that the illicit tobacco trade now operates as a three-pronged menace through direct smuggling, transshipment, and illegal manufacturing.

A large illegal cigarette manufacturing facility in Pampanga was recently raided and shut down by authorities, who described it as an industrial-scale operation capable of producing millions of pesos’ worth of cigarettes daily.

Sen. Sherwin Gatchalian has also called for a Senate investigation into the illicit tobacco trade, citing concerns about the scale of operations and the possible involvement of corrupt insiders who, he said, may be facilitating the illegal activities.

“The illicit trade of tobacco products does not only result in lost revenue from unpaid taxes. More importantly, it undermines the rule of law, jeopardizes public health, and enriches criminal networks,” Gatchalian said.