PHL loses P141B to illicit tobacco trade

By Isa Jane D. Acabal, Researcher

THE PHILIPPINES lost about P141 billion in government revenue to illicit tobacco trade in 2024 and 2025, with illegal vape products emerging as a major source of tax leakages, according to a report by the EU-ASEAN Business Council (EU-ABC) and Euromonitor International Ltd.

The Philippines posted the third-highest revenue loss among six Southeast Asian countries covered by the study, after Indonesia and Malaysia, according to the report released on Monday.

Philippine government revenue losses reached about $2.46 billion during the two-year period, composed of about $2.06 billion from illicit cigarettes and $400 million from illegal e-vapor products.

“The continued rise in illicit tobacco trade in ASEAN (Association of Southeast Asian Nations) and the broader Asia-Pacific region signals displacement of the legitimate market, while amplifying challenges for regulation, enforcement and diminishing fiscal contribution,” the council said in the 43-page report.

The study covered the Philippines, Indonesia, Malaysia, Singapore, Thailand and Vietnam, collectively referred to as ASEAN-6. It assessed the scale of illicit trade involving cigarettes and e-vapors, including contraband, counterfeit, illicit whites, untaxed products and unbranded tobacco.

Among the countries surveyed, the Philippines posted the highest revenue loss tied to illicit e-vapes. It also had the highest incidence of illegal vape products among markets where e-vapors are legal.

The report estimated that 85.6% of e-vapes sold in the Philippines last year were illicit products.

Meanwhile, illicit cigarettes accounted for 25.3% of the local market, significantly higher than the ASEAN-6 average of 16.1%.

Across Southeast Asia, governments were estimated to have lost a combined $13.07 billion in revenues in 2024 and 2025 due to illicit tobacco trade.

The report expects the illicit tobacco market in ASEAN-6 to expand further, with illicit trade incidence expected to rise to 27.8% by 2028 from 23.6% in 2025.

Researchers warned that the growth of illicit tobacco trade could weaken government revenues, hurt legitimate businesses and increase risks to consumers.

This affects government revenues and social welfare programs, drives down the profitability of legal businesses, supports illicit activities in the markets and poses health risks to consumers, EU-ABC said.

EU-ABC Executive Director Chris Humphrey said illicit tobacco trade diverts money away from the formal economy and reduces the region’s attractiveness to investors.

“Here in the Philippines, the National Calamity Fund could easily be funded if we could stop the illicit trade in tobacco and [collect the proper taxes] from it,” he separately told a news briefing

He added that the problem extends beyond the tobacco industry because widespread illicit trade creates unfair competition and discourages investment across sectors.

“It diminishes the region’s attractiveness for investments not just in tobacco, [but]… in other sectors as well,” he said.

‘GOOD ENFORCEMENT’
Firdaus Muhamad, head of consulting for the Asia-Pacific region at Euromonitor, said rising tobacco taxes, affordability pressures and widening price gaps between legal and illicit products continue to fuel demand for illegal products.

“The common trap in this story that we’re telling is affordability pressures,” he told the briefing. “Annual tax increases and the legal-illicit price gap create room for some illicit products to compete.”

He added that illicit operators could still raise prices while remaining cheaper than legal products, allowing illegal sellers to preserve or even expand profit margins.

The EU-ABC estimated illicit tobacco operators in the Philippines earned about $2.2 billion from illegal trade in 2024 and 2025.

To address the problem, Mr. Humphrey called for stronger regional coordination, especially among ASEAN countries with porous land borders.

He said governments should strengthen cooperation on Customs enforcement and improve digital track-and-trace systems to better monitor tobacco products across borders.

Filomeno S. Sta. Ana III, coordinator of Action for Economic Reforms, said stronger enforcement remains the most effective way to combat illicit trade.

“The key measure is good enforcement,” he said by telephone, noting that the Bureau of Internal Revenue, Bureau of Customs and local governments should continue intensifying anti-smuggling operations.

The report also noted that outright bans on e-cigarettes and vape products have not eliminated illicit trade in countries where such restrictions are imposed.

Mr. Sta. Ana noted that while bans could reduce legal sales, they could also expand underground markets if enforcement remains weak.