Congress is introducing new measures that will affect how cigarettes, other tobacco products and electronic cigarettes (vaping products) will be taxed in the coming years. One bill proposes a new system to track whether a tobacco product has been taxed, while another seeks to lower the annual increase in tax rates.
Under House Bill No. 11286, regular and electronic cigarettes, as well as other tobacco and vaping products, must bear a government stamp with “physical or digital features” indicating that they have been properly taxed. Additionally, manufacturers must register all the equipment used in producing all types of cigarettes, tobacco and vaping products.
I don’t think this is anything new. “Stamps” are already affixed on all cigarette packs, as well as liquor and other alcoholic products, to indicate that they are tax-paid. It seems this bill is simply updating the existing system by incorporating new technology. The real money-maker here is the government contract for the tracking system.
I have no objection to this. However, I highly doubt that a new track-and-trace system will eliminate smuggling and illicit trade. Tax evasion will persist, and the market will continue to have access to untaxed or smuggled cigarettes, electronic cigarette pods, and similar products. Smuggling is inevitable — it always has been, and it always will be.
What concerns me more, however, is the plan to effectively lower the tax on regular and electronic cigarettes and similar products. Under existing laws, tobacco taxes are set to increase by 5% annually from 2024 onwards. Now, Congress wants to amend this, proposing instead a 2% increase every even-numbered year starting Jan. 1, 2026, and a 4% increase every odd-numbered year starting Jan. 1, 2027 until the end of 2035.
After this 10-year period of alternating tax hikes, taxes will be reviewed based on their impact on revenue collections, healthcare costs and smoking prevalence. The justification for this lower tax trajectory is to minimize tax losses from smuggling. Congress even cites Bureau of Internal Revenue (BIR) data, claiming that successive tax increases have not necessarily led to higher collections.
Over the years, the government has raised the excise tax on cigarettes to reduce cigarette consumption and generate more revenue. Theoretically, tobacco taxes address “negative externalities” — the costs of smoking-related health problems such as lung cancer, heart disease and respiratory illnesses, which burden the healthcare system and lower labor productivity.
While some argue that high tobacco taxes disproportionately affect the poor and that cigarettes may now be overtaxed (with tax revenue exceeding related public healthcare costs), the policy has been effective in reducing cigarette consumption. One study found that smoking prevalence in the Philippines fell from 34% in 2000 to 24.5% in 2015 and is projected to drop to 20% by 2025. However, vaping consumption is rising.
I have always believed that public health, not public finance, should be the primary consideration in taxing cigarettes, tobacco and vaping products. The goal is to curb consumption due to its harmful effects on public health, while tax collection remains incidental. Given the gains we have made in reducing cigarette consumption, why lower tax rates now, especially if the objective is merely to curb smuggling and improve revenue collection?
The decline in cigarette consumption, however, does not account for alternative nicotine products, such as e-cigarettes (vapes), which use electronic atomizers and flavored liquid; snus, a smokeless tobacco product similar to dry snuff; and heated tobacco products, which heat tobacco instead of burning it.
A greater concern is that nontax initiatives aimed at reducing smoking, including alternatives like vaping, appear to be lagging. While tobacco taxes have played their part, lowering them over the next 10 years — rather than following the current trajectory — could have the opposite effect. While smoking bans in public places have helped, other regulatory measures to reduce smoking prevalence require greater attention.
We are already failing to curb tobacco use among the youth due to weak enforcement of nontax measures, such as restrictions on advertising and sales to minors. Now, Congress wants to slow tax increases, citing the need to protect legitimate sales and curb illicit trade. But the indirect consequence of this measure will be to make legal products more affordable, particularly for young consumers.
The problem is compounded by regulatory lapses. A study by the Institute for Global Tobacco Control (IGTC) found that tobacco and nicotine product sales and advertising persist near schools in the Philippines, despite regulations prohibiting sales, displays and promotions of tobacco products within 100 meters of schools.
Another IGTC study noted that countries like the Philippines and Vietnam lack regulations on the use of flavors in cigarettes and tobacco products. This is particularly concerning because flavored products make nicotine consumption more appealing to young people.
From December 2022 to January 2023, IGTC monitored the local sale and marketing of cigarettes, e-cigarettes and heated tobacco products at more than 6,000 retailers within 200 meters of 353 schools across nine cities and regions. Their findings were alarming: 2,070 cigarette retailers, 43 e-cigarette retailers and 33 heated tobacco product retailers were found within 100 meters of most schools — a direct violation of the law.
In another study published in Nicotine and Tobacco Research (August 2023), IGTC experts noted that tobacco companies continue to offer a wide range of flavored cigarette products in the Philippines and Vietnam to maximize sales. Given this, stricter regulation of flavor chemicals should be considered.
At this point, the Philippines already struggles to enforce existing laws on tobacco product advertising, promotion and sales. Rather than lowering tobacco taxes, Congress should focus on strengthening youth protection, including stricter regulation of flavored nicotine products.
One approach is to work with local governments, which issue business permits and enforce zoning restrictions. If tobacco products are not supposed to be sold near schools, then local officials should be held jointly liable for violations by licensed retailers. Alternatively, if erring retailers are fined, local governments should collect the penalties, creating a direct incentive for enforcement.
By empowering local governments, the National Government stands a better chance of effectively curbing underage smoking. Additional policies and regulations are meaningless without strict enforcement at the community level. Otherwise, young people will always find ways to bypass restrictions, and lower taxes will only make tobacco and vaping products even more accessible to them.
Congress should not lose sight of the original intent behind taxing tobacco and nicotine products. The primary goal has never been revenue collection, but rather public health protection. If policymakers are truly concerned about smuggling, they should focus on stricter enforcement rather than tax reductions that risk undoing years of progress in reducing smoking prevalence.
Marvin Tort is a former managing editor of BusinessWorld, and a former chairman of the Philippine Press Council