MANILA, Philippines —The Bureau of Internal Revenue will have to revise its revenue collection targets if Congress approves the proposed two-year moratorium on the annual hikes in tobacco excise tax, BIR Commissioner Romeo Lumagui Jr. said.
On the sidelines of the International Tobacco Agricultural Summit, Lumagui said that if a moratorium is imposed, the government must recalibrate its revenue projections for tobacco excise tax collections, which were set based on assumptions of annual rate hikes.
Under the revised tax structure, excise tax rates will increase by two percent in 2026 and four percent in 2027. It will alternate between two and four percent hikes until 2035.
“One issue that we will be (facing) moving forward if ever there is a moratorium is the corresponding increase in the excise tax goal on tobacco products,” Lumagui said.
“The goal for excise tax collection on tobacco products has already been set and that incorporates an assumption of the yearly rate increases,” he said.
Excise taxes are imposed on specific goods such as tobacco, alcohol, fuel and sugary beverages, serving both as a revenue source and a tool for regulating consumption.
A moratorium on excise tax increases has both advantages and risks. On one hand, it could curb the illicit trade of tobacco products, which has been thriving due to high tax rates.
According to Lumagui, illegal traders sell cigarettes below the current tax rate, making compliance less attractive for legitimate businesses.
“Many of these illicit cigarettes are being sold at around P40 per pack, while the tax rate alone is P63,” he said. “That’s already a major gap that makes smuggling highly profitable,” he said.
A tax freeze provides relief to consumers and businesses. For cigarette manufacturers, it allows for better price stability, while consumers – especially those in lower-income groups – can avoid further price hikes.
However, the downside is the potential loss of government revenue. Excise taxes are a key source of funds for infrastructure, health care and other public services.
Revenues from the country’s tobacco industry likely reached $7.3 billion last year. It is expected to grow at an annual rate of 2.67 percent from 2024 to 2029.
Lumagui also cited the industry’s contribution to the economy. He noted that in 2023 alone, taxes from tobacco products reached more than P134 billion.
Another concern is the impact on public health. Excise taxes on tobacco and alcohol are meant to discourage consumption. Lumagui said that the Department of Health has reported a 3.9- percent decline in tobacco use, partly due to higher taxes and stricter regulations.
“If tobacco use is decreasing, that means DOH may be succeeding in discouraging the use of tobacco products,” Lumagui said.