A new nationwide study conducted by Action for Economic Reforms (AER) in partnership with the Economics for Health group of the Johns Hopkins Bloomberg School of Public Health has found that gaps in enforcement and governance—not high excise taxes—are fueling the illicit tobacco market in the Philippines.
Researchers surveyed more than 1,000 sari-sari stores and audited over 7,500 cigarette packs across eight urban centers, including Dagupan, Navotas, Quezon City, Pasay, Batangas, Mega Cebu, Zamboanga, and General Santos. The analysis showed that while illicit cigarette sales remain low in Luzon, Visayas, and Metro Manila, the problem is severe in parts of Southern Mindanao. In Zamboanga City, almost 80 percent of cigarette packs were sold below lawful tax levels, and up to 96 percent carried fake or missing tax stamps. General Santos showed similarly high rates of illicit products.
These findings emerged months after lawmakers debated lowering tobacco excise taxes—an approach public health advocates strongly oppose, warning that cheaper cigarettes would increase smoking and fail to deter smuggling.
“The results disprove the tobacco industry’s narrative that high taxes cause smuggling,” said AER lead researcher Daffodil Santillan. “The evidence shows the real issue is weak law enforcement and regulatory oversight, especially at ports and borders. Lowering tobacco taxes will only make cigarettes cheaper and Filipinos sicker.”
The study stressed that uniform tax rates nationwide cannot account for sharp regional differences in illicit trade. Instead, local governance, border control, and enforcement intensity are determining factors.
Zamboanga City Vice Mayor Beng Climaco, who spoke at the study’s launch, highlighted the role of local leadership in combating smuggling. “During my term as Zamboanga City Mayor, I led an uncompromising campaign against smuggling in Zamboanga City, initiating investigations into Customs officials and over the disappearance of smuggled sugar and rice from warehouses, demanding full accountability,” she said. She added that as Regional Peace and Order Council Chair for two terms, she coordinated with law enforcement “down to the Barangay” and personally oversaw late-night operations to curb illegal trade.
AER called on the government to reject legislative proposals seeking to lower tobacco taxes, including House Bill 11360, which passed the House earlier this year with limited debate, and additional measures reducing levies on vape and heated tobacco products. The group warned that rolling back taxes would undermine years of health and fiscal progress. Since 2012, tobacco tax reforms have helped cut adult smoking prevalence from 29.7 percent in 2009 to 19.5 percent in 2021 while boosting revenues for public health programs.
To curb illicit cigarettes and preserve gains from reform, AER recommended upgrading the tax stamp system into a modern track-and-trace program, licensing all tobacco retailers, granting the Bureau of Internal Revenue authority to suspend or close noncompliant sellers, and strengthening coordination among Customs, BIR, and local governments in known smuggling hotspots. It also urged closer cooperation with neighboring countries to disrupt illicit supply chains.
“Tobacco tax reforms save lives and fund the healthcare of the most vulnerable Filipinos,” said Senator Risa Hontiveros, Chair of the Senate Committee on Health and Demography. “It’s time to protect public health and public revenues through stronger enforcement. Lowering taxes at this point, when our economy is struggling and [the] government needs revenues, may not be a good idea.”
The full report, Illicit Tobacco Trade in the Philippines: Findings from Sari-Sari Store Surveys and Empty Pack Audits, is available on AER’s website.
