Taking up the cudgels for big tobacco, Japan Tobacco International (JTI) wants to lower tobacco tax rates. So goes the news story titled “JTI lobbying for tweak in cigarette tax policy” (BusinessMirror, Aug. 12).
JTI claims that “high taxation does not necessarily translate into better health outcomes.” JTI’s corporate affairs and communications director, Shaiful Bahari Mahpar, said that high taxation caused the decline in consumption of legal tobacco brands but increased the illicit tobacco trade in the Philippines.
The JTI argument, which is likewise the argument of the whole tobacco industry, is most deceitful.
What the tobacco industry wants to “reform” is the annualized indexation of tax rates, equivalent to 5%. It claims that the 5% yearly tax increase is too high and is lobbying for its removal, going as far as pushing for House Bill 11360, a bill railroaded in the 19th Congress. But such a rate is in fact inadequate to reduce the affordability of cigarettes. It merely protects the value of the tax rate from being eroded by inflation.
The evidence is likewise clear. Making tobacco prices steeper through higher taxes will result in a fall in demand. This is most welcome because we want people to stop smoking, or at least reduce consumption. Contrary to JTI’s absurd claim that there is “no change in the overall total consumption in the Philippines,” a series of tobacco excise tax laws increasing taxes significantly in 2012, 2017, and 2019, led to adult smoking prevalence falling from 29.7% in 2009 to 19.5% in 2021 (Global Adult Tobacco Survey).
The substantial decline in smoking prevalence was accompanied by a significant rise in tobacco tax revenues. Price inelasticity of cigarettes explains the inverse relationship. In simple terms, the rise in taxes or prices does not have a proportionate decrease in smoking. After a tax hike, the predicted decrease in the rate of smoking will be smaller than the rate of tax increase, which will yield considerably more government revenues.
Yet, a disturbing pattern recently emerged. Smoking prevalence recently increased between 2021 and 2023, as reported by the Department of Science and Technology-Food and Nutrition Research Institute’s (DoST-FNRI) Expanded National Nutrition Survey. And revenue collection from tobacco excise taxes declined from 2022 to 2024, although data for the first half of 2025 show a rebound in tobacco tax revenues.
But contrary to what the tobacco industry suggests, the increase in smoking prevalence and the decline in government revenues cannot be attributed to high prices or high taxes.
The cause for the rise in consumption and drop in revenue collections: affordable vape and heated tobacco products (which are taxed lower than cigarettes) and cheap tobacco products in the illicit market.
Deterring illicit trade is mainly a function of governance and enforcement, not of tax or price. This is well illustrated by a survey and price audit of sari-sari stores done by Action for Economic Reforms conducted in 2024, which showed that illicit tobacco trade is very low in major cities in Luzon and the Visayas, but extreme in parts of Mindanao. Given the acutely contrasting results between Mindanao and the rest of the Philippines with regard to the magnitude of illicit trade, we can conclude that the cause is not the tobacco tax, which is applied nationally. In Luzon and Visayas, the Bureau of Internal Revenue (BIR) and cooperating local government units have strong and consistent enforcement. In major parts of Mindanao, particularly those where historical open trade with neighboring countries thrives, bad institutions, particularly control by warlords or high-level authorities, abet illicit trade.
We must combat illicit trade. But the key clearly is tougher enforcement of rules — not only through heavy penalties but, more importantly, through a credible commitment and a real threat that violators have a high probability of being caught, prosecuted and punished with the full weight of the law.
Tobacco control advocates have proposed a menu of proven policies to fight illicit trade. These include: a digital track and trace system independent from the tobacco industry that can monitor the movement of tobacco products across the supply chain in real time; stronger coordination among national agencies and local government units; granting power to the BIR to revoke licenses of businesses involved in illicit trade; forging inter-regional cooperation to stop the movement of illegal cigarettes at the point of origin; and enabling citizens to take action against illicit trade by using ubiquitous, user-friendly technology.
Both economic theory and experiences of dozens of countries worldwide show that the tobacco industry’s lobby to lower tobacco taxes would result in much lower tax revenues. Yet the industry professes concern over the decline in government revenues. Health outcomes would worsen as demand for lower-taxed — hence cheapened — cigarettes would rise. Our sin tax laws require that tobacco excise tax revenues be allocated towards public healthcare; therefore, a decrease in tobacco tax rates would jeopardize our public healthcare system. Yet ironically, the industry’s propaganda expresses concern over health.
In short, the so-called concern of the tobacco industry is hypocritical, even nonsensical, and undoubtedly, a huge deception. To achieve better health outcomes and to raise tax revenues, the government should not roll back taxes; in fact, the evidence shows it must legislate higher taxes.
The industry’s disinformation is that higher prices because of higher taxes cause the decline in government revenues and cause the rise in illicit trade. But the disinformation conveniently avoids the stark fact that the tobacco companies themselves are boosting their retail prices much higher than the increase in tax rates.
The evidence is clear. In 2023, the tobacco excise tax rate increased by P5 per pack. The same year, the increase in the net-of-tax retail price of the most popular brands of registered tobacco companies increased by almost double the increase in the tax rate. In 2023, JTI’s best-selling brand, Mighty, had an increase in net-of-tax retail price of P7.55, and Philip Morris increased the net-of-tax retail price of Marlboro, the best-selling brand in the market, by P9.11. Obviously, the tobacco industry could afford to raise their prices higher than the P5 per pack increase in 2023.
In 2024, when the tobacco tax rate indexation transitioned from the specific P5 annual increase to 5% of the previous year’s excise tax rate, which translates to P3, the net-of-tax price of JTI’s Mighty was hiked to P10.96, more than triple the increase in excise tax rate in 2024.
These facts suggest that the government can and must further increase tobacco taxes. Why shouldn’t the government raise taxes at a higher rate when tobacco companies are boosting their prices at rates higher than the existing incremental tax rates that barely keep pace with inflation?
And while revenues from tobacco excise taxes have declined, financial statements obtained from the Securities and Exchange Commission (SEC) show that the revenues of JTI, especially, and Philip Morris have increased. The financial statements show that the bottom lines for both companies are in the black. They have solid profits.
Moreover, an Economics for Health policy paper published in June 2025 (Economics for Health, https://tinyurl.com/2xlo67nm/) noted that the tobacco industry’s profits could easily be manipulated by moving profits to associated distributors and other entities in the supply chain. This would require further investigation by the government.
For the first half of 2025, Fortune Tobacco registered a 12% growth in net income, resulting from a 10% increase in equity earning from Philip Morris Fortune Tobacco Corp. (Bilyonaryo, Aug. 13).
Ultimately, the lobby of the tobacco industry is all about greed and profit maximization. In defense of greed, the industry uses nonsensical and deceitful arguments.
Tragically, the nonsense the industry is peddling causes immeasurable harm. Lower tobacco prices because of lower taxes translate to more smokers and more tobacco-related diseases and deaths.
Horribly, the industry’s lobby to lower tax rates is murderous. At least half of smokers will die prematurely from a tobacco-attributable disease. Tobacco kills.
Filomeno S. Sta. Ana III coordinates the Action for Economic Reforms. Pia Rodrigo is strategic communications officer at Action for Economic Reforms.
