Rising Taxes on Cigarettes and Vaping Products Drive Illegal Market Growth
An Australian security expert has urged the Philippine government to reconsider its tax policies on cigarettes and vaping products, warning that higher taxes can inadvertently boost illicit trade and weaken tobacco control efforts. The exact 4-word keyphrase, “taxes on cigarettes and vaping products,” highlights the core issue. While governments often increase taxes to reduce tobacco use and raise revenue, experts say this approach can backfire.
A seasoned professional with decades of experience in law enforcement and customs shared insights during a recent Senate hearing on House Bill 11360. This bill aims to curb illegal trade by scheduling excise tax increases—2% every even year starting 2026 and 4% every odd year beginning 2027—and unifying tax rates for various vaping products.
Lessons from Australia’s Experience with Tobacco Taxes
Australia, known for strict tobacco and vaping regulations, has raised excise taxes on tobacco by 800% since 2010. However, this has led to unintended consequences. Legal cigarette prices have soared, making illicit cigarettes far cheaper and more attractive to consumers. In Australia, illegal cigarettes cost less than a third of legal ones, while in the Philippines, smuggled packs sell for about P40 compared to P140 for legal packs.
This price gap encourages new smokers, especially among adolescents. Recent data shows that adult smoking rates in the Philippines climbed from 18.5% in 2021 to 23.2% in 2023 after years of stagnation, signaling a troubling trend likely linked to illicit cigarette availability.
Impact on Government Revenue and Crime
The rise in illicit trade also diminishes government tax collections. Australia’s excise tax income dropped by 55% from $16.3 billion in 2020 to $7.4 billion. Similarly, the Philippines saw excise revenues fall from P176 billion in 2021 to P134 billion in 2024. Experts warn that continued tax hikes may further reduce government income.
Illicit cigarette and vape markets fuel organized crime, violence, and property crimes. In one Australian state alone, over 200 arson attacks on shops and warehouses linked to illegal tobacco occurred in just two years. Crimes such as homicides, kidnappings, extortion, and armed robberies have also increased, driven by the high profit margins in this black market.
Strategies to Combat Illicit Trade in Tobacco and Vaping Products
Experts recommend a balanced, evidence-based approach to tackle the problem. First, setting appropriate tax rates that do not encourage illicit trade is essential. Second, enforcement and prosecution efforts must be strengthened to deter illegal activities. Third, adopting harm reduction policies that promote safer nicotine alternatives can help protect public health.
Experts caution that the Philippines risks repeating Australia’s mistakes by continuing annual excise tax increases, which have shown diminishing returns and fueled illegal markets. Both countries have vast coastlines and porous borders, making it easier for illicit products to enter, especially since the Philippines is near major source countries of illegal tobacco.
Freezing or reducing excise rates could suppress the primary driver of illicit trade. Moreover, combining proportionate tax policies with education campaigns and incentives for reduced-risk products could help reduce smoking rates while stabilizing government revenues.
“The Philippines has the chance to get this right. By taking a proportionate, evidence-based approach, the Philippines can reduce smoking, stabilise revenue and keep its citizens safer and healthier,” said sources familiar with the matter.
For more news and updates on tobacco control, visit Filipinokami.com.