NTA backs moratorium on higher tobacco excise taxes

MANILA, Philippines — The National Tobacco Administration (NTA) is supporting a moratorium on tobacco excise tax hikes to curb illicit tobacco trade in the country.

In a letter to the House of the Representatives, NTA administrator and CEO Belinda Sanchez said she supports the proposed moratorium, arguing that it offers a “practical” and “targeted” solution against illicit cigarette trade.

“By pausing the excise tax increase for 2026, we can temporarily stabilize the market and reduce the price disparity between legitimate and illicit cigarettes,” Sanchez told lawmakers led by House committee on ways and means chairperson Rep. Joey Salceda.

“This pause will help legitimate manufacturers regain competitiveness, which is crucial to restoring demand for locally produced tobacco leaf for local consumption,” Sanchez added in her letter, a copy of which was obtained by The STAR.

The NTA chief noted that the “alarming growth” of illicit tobacco trade in the country has hampered government revenue collection and demand for locally produced tobacco leaf.

“The widening gap between the prices of legitimate and illicit cigarettes, aggravated by successive excise tax increases, has incentivized the proliferation of smuggled and counterfeit products,” Sanchez said.

A portion of the collected tobacco excise taxes capped at P21 billion annually is plowed back for the development of the domestic tobacco industry on which around 2.1 million Filipinos depend for their livelihood.

At present, tobacco excise taxes increase by five percent annually, with a base tax of P60 per pack. Illicit cigarettes are sold at around P40 per pack, lower than the excise tax imposed by the government.

Lawmakers have proposed and deliberated on pushing a moratorium on tobacco excise taxes as revenue collection on the sin product has drastically dropped in recent years.

However, the House of Representatives recently passed on second reading House Bill 11360, which seeks to impose a lower tax rate on tobacco products, doing away with the moratorium. HB 11360 replaced HB 11279, which earlier proposed a moratorium.

Under HB 11360, the government will adopt an odd-even scheme in hiking the tobacco excise taxes: two percent every even-numbered year and four percent every odd-numbered year until 2035.

The Department of Finance (DOF) officials, including Secretary Ralph Recto, have expressed openness to proposals surrounding the implementation of the excise tax on tobacco. No less than Recto emphasized that the government is losing P50 billion in revenues.

The finance chief noted that what the government is looking for is a sweet spot for the tobacco excise tax, citing that the government was able to collect over P170 billion in tobacco excise tax a few years ago.

“Maybe that is the sweet spot,” he said.

“We are willing to listen to the Congress and wait for all the comments from industry stakeholders including health advocates. We are also a health advocate since we want more collection so we can subsidize the Philippine Health Insurance Corp.,” he added while noting that the DOF did not sponsor any bills to tweak the current tobacco excise tax regime.

The Bureau of Internal Revenue (BIR) collected as much as P176.48 billion in tobacco excise taxes in 2021 before it continuously dropped to P160.4 billion in 2022 and P134.91 billion by 2023.

The BIR collected about P134 billion in tobacco excise taxes last year, about P51 billion short of its P185 billion target collection.

The BIR has been reeling from the illicit trade of tobacco in the country, which contributes to why the agency has been missing its collection target for excise products.

There is also the transition to vape products. The BIR has difficulties in going after illegal ones given that it has become a backyard industry whose production can be done even at home.

BIR Commissioner Romeo Lumagui Jr. said that if a moratorium on tobacco excise taxes would be implemented, then the government must recalibrate its revenue projections for tobacco excise tax collections, which were set based on assumptions of annual rate hikes.

“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.

The Philippine Tobacco Institute also supported the moratorium on tobacco excise taxes, arguing that the increase in illicit cigarette supply in the country coincided with the uptick in the number of Filipino adult smokers in recent years.

Citing Food and Nutrition Research Institute data, Nograles said the percentage of adult Filipino smokers at the end of 2023 rose to 23.2 percent from 18.5 percent in 2021. This increase mirrored the rise in illicit cigarette trade in the country that reached 19.8 percent in 2023 from 13.6 percent in 2021 based on Euromonitor data, Nograles added.

“Illicit trade thrives due to the availability of untaxed cigarettes sold at a fraction of legitimate products. Legal cigarettes are up to five times [more expensive] than [its] illicit counterparts,” he said.

Nograles said the diminishing state revenues on tobacco excise taxes could be attributed more to tax leakages than the change in consumption patterns from cigarettes to vape.

“The shift is minimal compared to the presence of illicit trade,” he said.