The tobacco industry may have contributed to the illicit trade of tobacco in the Philippines, a new report by international watchdog Stopping Tobacco Organizations and Products (STOP) showed.

The tobacco industry, STOP said, often portrays itself as a victim of the illegal tobacco trade, blaming high taxes and alleged criminal groups distributing counterfeit products.

But STOP’s report shows new evidence that tobacco firms may be involved in the illicit trade of cigarette brands through tax stamp violations, underpricing, and overshifting. The report draws on research by the non-governmental organization Action for Economic Reforms (AER), which investigated illegal tobacco trade in the Philippines in 2024.

The watchdog also said the tobacco industry has a record of facilitating illicit trade, with several multinational firms facing investigations and legal action over evidence of their involvement.

Tax stamp violations

Tax stamps are those that are attached to cigarette packs that allow authorities to verify whether tobacco producers and importers have paid the correct excise tax before these are sold.

In the Philippines, taxes collected from tobacco products are funneled in healthcare services.

AER researchers submitted to the Bureau of Internal Revenue (BIR) 7,542 empty cigarette packs from 326 sari-sari stores in Metro Manila and five cities outside the capital region. The agency analyzed the packs and discovered 6,791 packs were from registered brands.

Of the collected empty packs, the BIR further found that in Metro Manila, 9.5% of registered brands had either counterfeit or no tax stamps while in cities outside Metro Manila, it was at 14.1%.

“These findings help illustrate the scale of tax stamp fraud in the country, and also highlight a challenge: While these packs bore the branding of registered manufacturers, it is difficult to determine whether the packs were legitimate tobacco industry products – indicating industry involvement in the illicit market – or counterfeits,” the report stated.

“The current evidence, plus the industry’s historic involvement in illicit trade, raises serious questions about the industry’s current business practices,” it said.

STOP added that the BIR’s capacity to look into the source of counterfeit stamps should be upgraded.

Underpricing

When it comes to prices, AER researchers learned that cigarettes were sold in sari-sari stores at a price that does not meet tax obligations.

The report noted that cigarettes may be priced below the floor price, which was P114.60 at the time the data were collected, but it should still be high enough, or P71.42 per pack at the time, to cover taxes.

Based on data they gathered, cigarettes were sold below P71.42 per pack, “prices at which excise and value-added tax obligations cannot plausibly be met.”

The researchers saw packs linked to registered brands were underpriced in Cebu, General Santos City, and Zamboanga City.

“The research findings yield useful insights into the practice of underpricing and highlight a potential industry tactic to reduce the price of tobacco and undermine the positive health and fiscal effects of higher tobacco taxes,” the report said.

The BIR is the one setting cigarette floor prices, basing it on the production costs submitted by tobacco firms.

But the report said the process allows the firms to “counter increases in tobacco taxes by submitting lower production costs.” An example it stated is when the production cost decreased by over 80% in 2024, resulting in a floor price of P78.58 from P114.60 in 2023.

As of July 2025, the floor price of cigarettes is P85.57 per pack.

Overshifting

The report also observed that tobacco firms are “maximizing their profits” through overshifting, a strategy in which prices are raised “by more than what is required to account for a tax increase.”

It means the consumers are the ones shouldering the entire tax increase instead of the companies themselves. STOP said the firms even add a price hike.

“The relative price inelasticity of cigarettes means that when tobacco companies overshift, they may sell fewer cigarettes but still make more overall profits. This is problematic, as gains from higher tobacco prices should benefit government tax revenues and the health programs they support, not tobacco companies,” read part of the report.

Citing a recent study, STOP said brands that are most-sold, cheapest, and premium were observed to have price increases beyond the expected tax-related hike and inflation in 2020. Researchers found that the value chain and profit categories spiked by over one-third from 2020 to 2023.

Scaling down illicit trade

STOP recommended to policymakers to strengthen its enforcement by having authorities conduct inspections and enforce tax and pricing regulations.

AER advocacy and communications lead Pia Rodrigo and policy expert Sophia San Luis pushed for a comprehensive and independent track-and-trace system.

“The ideal one is where customers can scan the QR codes on the packs themselves to verify whether or not they are tax-paid or they are legitimate regulated tobacco companies,” Rodrigo said during an online forum.

“‘Yung best practice sa track-and-trace system… dapat mula pabrika hanggang tindahan ‘yung tracing system natin. Ibig sabihin, dini-disclose dapat ng industriya ga’no karami ‘yung pino-produce nila and ano ‘yung intended market nila, and dapat nakikita natin [kung] nagla-land ba ‘yung produkto sa intended na market. Dapat ‘yung enforcers natin are equipped para malaman kung ‘yung tax stamps ba are legitimate,” San Luis said.

(The best practice in the track-and-trace system is that we are able to trace from factories to markets. This means, the industry should disclose how much they produced and who its intended market is. We should see that the products reach the intended markets. Our enforcers should also be equipped to know whether the tax stamps are legitimate or not.)

STOP also told policymakers to reject the tobacco industry’s call to lower taxes and to avoid engagement with them due to their “misleading” claims.

“It’s really important to be aware [that] the tobacco companies often make misleading narratives, especially about tobacco taxation and illicit trade, and the Philippines is no exception. Instead of trusting what health-harming or profit-driven companies say, we should independently reach our own conclusions drawing from both national and global data,” said Allen Gallagher of the Tobacco Control Research Group at the University of Bath.

The global watchdog likewise called for a revision on the setting of floor prices of tobacco as current BIR rules give firms an opportunity to “influence” the cost, leading to “huge fluctuations in short periods of time.”

Protecting the vulnerable sector

Youth leader Jeannie Anne Maguad said among the reasons why people start cigarette smoking is affordability and accessibility, peer pressure, trend hopping, and curiosity.

Affordability and accessibility, she said, play a big role at the start, especially for young people, as they enable them to try cigarettes.

“‘Yung trying kasi, ‘yun na of course ‘yung gateway to addiction. Once na-addict na sila dito sa paggamit ng mga produkto na ‘yun, ‘yun mga spare coin na dati ginagamit lang nila para mag-try or para bumili ng isang stick, parang magte-turn ‘yun into ‘yung buong allowance na nila gagamitin nila para makabili ng isang pack or ng new vape,” she explained.

(Trying is the gateway to addiction. Once they are addicted to the product, the loose change they used before to just try or buy a stick turns into spending their entire allowance to buy a whole pack or a new vape.)

That’s why heeding to the tobacco industry’s call to lower taxes means taking advantage of the vulnerabilities of the youth and the poor, Maguad said.

“‘Yung kagustuhan nila i-lower ‘yung taxes and eventually lower the prices of these goods, hindi ‘yun out of concern sa mga mahihirap or sa mga kabataan. Selfish [act], para sa kanila ‘yun para ma-secure nila ‘yung customers nila,” the youth leader said.

(Their desire to lower taxes and eventually, the prices of these goods is not out of concern for the poor or the youth. It is a selfish act for them to secure their market.) 

While taxes from tobacco can be beneficial in healthcare services, San Luis said it cannot outweigh the impact of illicit trade.

“‘Pag pumapasok sa’tin ‘yung illicit cigarettes (When illicit cigarettes enter), it’s still accessible to children, to the youth, and also other vulnerable people who cannot afford the healthcare costs of using cigarettes and other forms of tobacco and nicotine products,” she said. “We’re not saving lives because illicit tobacco still makes its way into our shores.”

Based on the 2023 National Nutrition Survey, 4.8% of adolescents aged 10 to 19 are smokers, doubling from the 2.3% logged in 2021.

The number of smokers also increased among adults from 19% in 2021 to 24.4% in 2023.

About 112,000 Filipinos, the World Health Organization said, die from tobacco-related diseases every year.

The Department of Health (DOH) also noted that the three top leading causes of death in the country — heart attacks, cancer, and strokes — are related to tobacco use.

Diseases linked to tobacco use do not only affect users, the DOH stressed, but also those exposed to the smoke. – Rappler.com