A group of congressmen in the Philippines filed a bill to temporarily suspend annual excise tax increases on tobacco products in light of the rising prevalence of illicit cigarette trade and declining revenue collections.
The multipartisan group, which includes two House Deputy Speakers, argued that the Sin Tax Law’s dual objectives of generating revenue and protecting public health are being compromised by the surge in illegal tobacco trade.
House Bill (HB) 11279 proposes a one-year suspension of the automatic 5-percent annual excise tax hike on cigarettes, heated tobacco products, vapor products, and cigars.
“Due to the prevalence of illicit tobacco products, the government’s excise tax collection has been declining since 2022. From a peak collection of P176 billion in 2021, tobacco excise revenues declined to P160 billion in 2022. In 2023, the Bureau of Internal Revenue (BIR) reported that the government has lost around 15.9 percent or P25.5 billion in revenue due to illicit trade in cigarettes, ending collections in 2023 with P135 billion,” the bill said.
“This lost revenue amounting to billions of pesos adversely affected the government’s funding for health programs,” the authors of the bill said.
The sponsors of the bill include Deputy Speaker and Isabela 1st District Rep. Antonio “Tonypet” Albano, Deputy Speaker and Ilocos Sur 2nd District Rep. Kristine Singson-Meehan, Ilocos Norte 2nd District Rep. Angelo Marcos Barba, Kabayan Party-list Rep. Ron Salo, Ifugao Lone District Rep. Solomon Chungalao, and PBA Party-list Rep. Margarita Nograles-Almario.
In their explanatory note, the lawmakers pointed out that the steep excise taxes intended to reduce smoking may have inadvertently fueled the rise of illicit tobacco products.
“While it is in the country’s legitimate interest to impose higher taxes on sin products, the increase in the amount of excise taxes imposed on registered cigarette products unintentionally resulted in the proliferation of illicit and counterfeit products due to their low-entry point and affordability,” they said.
The bill highlights that the illicit trade now accounts for 13.2% of the total tobacco market, up from 5.3% in 2020, with illicit cigarette users reaching an average of 13.9% in 2023.
“It is imperative for the government to recalibrate its existing revenue measures and ensure that our tax laws do not unduly incentivize nor give premium to the illicit traders at the expense of legitimate business,” the lawmakers stated.
HB 11279 also raised concerns about the link between illicit tobacco trade and national security.
“Illicit trade of tobacco products, which may now include vapor products, has been linked to the financing of terrorist organizations,” the bill said.
The lawmakers stressed that bridging the price gap between legitimate and illicit products would deter the consumption of illegal goods, ultimately curbing the rise of illicit trade.
The proposed measure seeks to protect legitimate businesses and ensure fair competition. It also aims to stabilize revenue collections, ease the burden on legitimate enterprises, and promote a fair and secure market environment.
“Destroying legitimate businesses through excessive taxation, while illicit traders continue to dominate the market, is unacceptable. Such actions are counterproductive and undermine the nation’s goal of fostering a stronger economy, which ultimately benefits the greater public,” the lawmakers said.
