By Pia Rodrigo 

The Philippines has successfully raised tobacco tax rates to lower smoking prevalence and fund universal healthcare through three transformative laws passed between 2012 and 2020, establishing itself as a global leader in health tax policy. Tobacco industry lobbying and misinformation now put the Philippines at risk of reversing this progress. 

Recently, the tobacco industry has increased its efforts to persuade policymakers in the Philippines to reverse course and consider lowering tobacco tax rates. The industry argues that tobacco tax rates are too high and are causing illicit trade, given that smoking prevalence among Filipino adults increased between 2021 and 2023 and government revenues from tobacco taxes dropped between 2022 and 2024. Since 2024, however, government revenues from tobacco taxes have rebounded. 

Bills to sabotage the Sin Tax: an attack on public health and revenue 

Citing these claims, politicians representing tobacco-growing provinces in the Philippines moved swiftly in January 2025 to pass House Bill 11360 in the House of Representatives. This bill proposed lowering the annual increase in excise taxes on tobacco and vape products from a 5% yearly increase to an alternating 2% and 4% yearly increase.  

Health advocates opposed this proposal, noting that effectively lowering tobacco tax rates would erode both health and revenue objectives of the Sin Tax Law and eventually lead to over 1 million new smokers and P176 billion (approximately USD$2.86 billion) forgone revenue by 2030 if passed.  

Ultimately, HB 11360 was only passed in the Lower House and was not passed in the Senate, so never passed into law. However, a similar version was revived by politicians from tobacco-growing regions in early 2026 through House Bills 5207, 5212, and 5364, this time proposing to effectively lower taxes only on e-cigarettes or vape products.  

This flurry of activity is founded upon overstated industry claims that are contradicted by independent research.   

Despite the industry’s claims that tobacco taxes cause illicit trade, a study published last year by Economics for Health (EfH) and Action for Economic Reforms (AER) in eight key cities showed that illicit trade in the Philippines is largely caused by weak local enforcement, not high tax rates. 

Higher rates of illicit trade identified in Mindanao, almost zero in other regions 

The EfH-AER study included a survey conducted from May to June 2024 among 1,100 sari-sari stores (small, neighborhood stores) and an empty pack audit. The Philippines’ Bureau of Internal Revenue (BIR) analysed 7,542 packs from 326 sari-sari stores to determine whether the brands were legally registered for sale in the Philippines and to confirm the presence and authenticity of legally required tax stamps on the packs. 

It showed that while the prevalence of cigarette packs bearing labels of brands not registered with the BIR (implying that these packs are illegal and possibly smuggled) was high in the southernmost Philippine cities on the island of Mindanao (47.5% in General Santos and 58.6% in Zamboanga), they were lower (8.4% in the Luzon port city Batangas) and even approaching zero in non-Mindanao areas (0.8% in Cebu in the Visayas, 0.8% in Navotas, 0% in Pasay and Dagupan, and 0.2% in Quezon City). 

Given that tobacco tax rates are applied nationally, the wide variation in illicit trade prevalence across the country indicates that gaps in local enforcement, geographical location and cultural factors, not high tobacco tax rates, are the primary reason for higher illicit trade in Mindanao, contrary to the industry’s arguments. 

Insights from focus group discussions with local governments, academics, and enforcement groups in Mindanao align with this finding, noting the ubiquity of informal trade between southern Mindanao and neighboring states like Sabah and Indonesia, not just for cigarettes but also for basic necessities.  

 

Table1: Estimated prevalence of illicit trade per study site, by indicator (underpricing, tax stamp violation, and smuggling of unregistered brands). 

Study site	Pricing below the sum of excise and value added taxes	Tax Stamp Violation	Smuggling
	% of packs sold below the total applicable taxes (Php 71.42)	% of packs with fake and/or missing tax stamps	% of packs of unregistered brands
Navotas	0.2%	8.8%	0.8%
Pasay	0%	2.3%	0%
Quezon City	0%	8.6%	0.2%
Batangas	7.5%	8.4%	8.4%
Dagupan	0.7%	2.9%	0%
Mega Cebu	1.8%	1.2%	0.8%
General Santos	38.5%	85.4%	58.6%
Zamboanga	79.5%	96.3%	47.5%

 

Fake tax stamps imply potential industry involvement 

Smuggled, unregistered brands were not the only indicator of illicit activity identified in this research. Among the registered brand packs collected, 14.1% of registered brands had tax stamp violations, with 2% having fake stamps and 12.1% bearing no tax stamps. In Metro Manila, 6.2% of packs bore fake tax stamps. This included 7.2% of packs bearing brands associated with Japan Tobacco International (JTI) and 5.3% of packs bearing brands associated with Philip Morris (PMFTC).  

Based on the available evidence, it was not possible to conclude whether these were slick counterfeits, indications of failures in industry’s efforts to secure its supply chains, or proof of industry complicity.  

A January 2026 report by STOP, based on the findings from the EfH-AER study, highlighted the need for further investigation into the industry’s possible complicity in illicit trade and the need to more broadly counter the industry’s arguments that high tobacco taxes are causing illicit trade and hurting industry revenues.  

The STOP report also cites research examining evidence from the Philippines of over shifting, or the tobacco industry raising prices higher than tax increases to boost its profits. This rebuts industry claims that it is harmed by tobacco tax increases and instead confirms “there is room to increase tobacco taxes further, not reduce them… allowing the additional revenue to benefit society instead of the industry.” 

Policymakers must reject the misleading industry narratives and legislative proposals to lower tobacco taxes. The Department of Finance is now considering new revenue measures to support vulnerable groups affected by the ongoing fuel crisis and offset the suspension of excise taxes on liquefied petroleum gas (LPG) and kerosene. This may be an opportunity for the government to look at increasing tobacco taxes as an opportunity to increase revenues and protect public health. 

 

Author:

Pia Rodrigo is Strategic Communications Officer, Action for Economic Reforms