The Bureau of Internal Revenue (BIR) has estimated revenue loss from illicit cigarette trade at PHP 40 billion to PHP 45 billion, or 20 percent of total government revenues, as agencies scramble to stop smuggling of tobacco products and prevent tax leakages amid overlapping policies, including tobacco manufacturing operations inside economic zones.
This was revealed by BIR Deputy Commissioner Jethro Sabariaga during a Zoom forum titled “Smuggling on the rise: Bridging policy gaps in combating cigarette and vape smuggling,” which discussed policy issues and gaps in stopping illicit cigarette trade. The forum was organized by the consumer group Bantay Konsyumer, Kalsada, Kuryente (BK3).
“We are working on the assumption that 20 percent of revenue is being lost to illicit trade,” said Sabariaga, who also cited similar Euromonitor data. This equates to PHP 40 billion to PHP 45 billion when considering 20 percent of the revenues, he said.
Intermingling permits at PEZA zones
The BIR official noted difficulties in monitoring tobacco product manufacturers inside economic zones administered by the Philippine Economic Zone Authority (PEZA) due to intermingling permits.
He explained that tobacco manufacturers are granted intermingling permits—allowing both domestic and export production within export processing zones—raising concerns about the payment of excise taxes on partially unmanufactured tobacco (converted into cigarette sticks), which could weaken BIR’s monitoring capability.
Sabariaga shared observations that many manufacturers pay only the excise tax rate without availing of refund or replenishment mechanisms, enabling them to “skip the monitoring process.”
As a result, the BIR can only account for tobacco entering the country from domestic and imported sources but cannot determine the volume produced domestically or exported by the tobacco companies. “We have to make sure that these exported tobaccos are actually exported,” Sabariaga emphasized.
He urged the Department of Trade and Industry (DTI), which directly supervises PEZA, to address the issue, stressing that “these manufacturing companies often operate under the fiction that it is a separate territory and they refuse our territorial and enforcement actions because they are within PEZA zones.”
Recently, the BIR has reviewed a proposed track-and-trace system to enable the public to verify product authenticity through technologies like QR codes, moving away from the previous stamp system. “I think this is a step in the right direction,” he said. The BIR is also reviewing a 1968 regulation to tighten certain measures.
Sabariaga called for inter-agency coordination to understand industry behavior better. He emphasized that regulatory agencies should unify their approach to effectively curb illicit trade.
The issue of coordination and enforcement at PEZA zones was also raised by Bureau of Customs Deputy Commissioner Juvymax Uy.
Uy explained that BOC’s role in inspecting cigarette exports is limited because PEZA has its own mandate. BOC is working on an automatic export declaration system that matches the volume of raw materials imported by a tobacco company with the volume of cigarettes exported. However, BOC can only examine containers within a 30-minute window.
Uy reported that as of this year, the BOC has seized 81 smuggled vape and tobacco products valued at approximately PHP 755 billion. From January to April 2025 alone, Uy said they seized 75 cigarette shipments worth PHP 280 million and 11 vape shipments valued at PHP 483 million.
Customs has also destroyed over 2 million pieces of confiscated vape products, witnessed by no less than President Ferdinand Marcos Jr.
Both officials underscored the need for collaborative efforts among government agencies, stakeholders, the public, and consumers.
Uy suggested that international engagement through the Department of Foreign Affairs is necessary, especially regarding illicit cigarette trade originating from southern Mindanao borders like Malaysia and Indonesia.
Public health
Philippine Tobacco Institute President Jericho Nograles expressed alarm that illicit tobacco trade has reached “an all-time high, rapidly approaching irreversible levels.”
By the end of 2024, he stated, illicit trade accounted for 18.2 percent of the market in many areas.
Despite commendable efforts by the BIR, BOC, and other enforcement agencies, Nograles lamented that the scale and speed of illicit tobacco trade have overwhelmed current systems.
He noted that for every five cigarettes sold today, one is untaxed and unregulated. Government excise revenue dropped from PHP 176 billion in 2021 to PHP 134 billion in 2024, representing a PHP 42 billion loss—equivalent to PHP 21 billion in potential funding for the country’s health system and PHP 21 billion for PhilHealth. “Now, illicit whites comprise about 95 percent of the illicit market,” he said.
Nograles further pointed out that legal cigarette volumes declined from 69 billion sticks in 2020 to 43.8 billion sticks in 2024, attributing this shift to increased consumption of illegal tobacco products.
For its part, Bantay Konsyumer, Kalsada, Kuryente convenor Atty. Karry Sison raised the alarm that the illicit tobacco trade has evolved into a full-blown crisis, as smoking prevalence rose sharply from 18.5 percent in 2021 to more than 23 percent in 2023, driven by the availability of cheap products, which are most likely, usually, illegal and unregulated.
She cited data from the Department of Science and Technology – Food and Nutrition Research Institute, which showed that youth smoking surged to 23.2 percent in 2023, with adolescent vape use jumping from only 7.5 percent to nearly 40 percent in 2023.
“Many of these products that are purchased are flavored, unregistered, and chemically unverified,” Sison pointed out, adding that doctors are already seeing 16-year-olds with COPD (chronic obstructive pulmonary disease), an illness once only seen in the elderly.
Early last week, the Senate Committee on Ways and Means tackled House Bill 11360, which was cleared in the Lower House on third reading just last January. The House-approved bill seeks to amend the National Internal Revenue Code, imposing a 2 percent tax rate on tobacco products, increasing by 2 percent every even-numbered year starting in 2026, and 4 percent every odd-numbered year starting in 2027.
In the said hearing, Committee Chair Senator Win Gatchalian emphasized that lowering taxes is not the solution to illicit trade, but strengthening enforcement. The DTI is the main government regulatory agency on vape products.
More convictions
Sison lamented that only two convictions out of the 1,296 BOC seizures, and only one out of 1,785 by the BIR, have been convicted. “It shows that there is a need to go beyond mere enforcement. We need to ensure that they answer for their crimes. The failure to hold transgressors accountable means that smugglers operate with impunity— to the detriment of the government, its people, and public health. There is no fear of consequence unless those who have been caught involved in this illegal trade are made to answer for their actions.”
The consumer watchdog would like to see the ratio of convictions to seizures increase. Strengthened enforcement and ensuring justice shall provide a more viable solution to the illicit trade, Sison stressed.
The group also put pressure on government agencies to shed light on the issues of criminality and corruption linked to tobacco smuggling and weak regulation of vapes.
