An Australian security expert asked the Philippine government to learn from his country’s policy mistakes involving excessive taxation on tobacco and vaping products.
“The annual tax rate increases mandated in both the Philippines and Australia have resulted in diminishing returns in government revenues, are undermining measures to curb smoking rates, and are fueling organized crime,” said Rohan Pike, an investigative consultant with 25 years of police and customs experience at the Australian Federal Police and the Australian Border Force.
Pike was one of the resource persons during the recent hearing on House Bill 11360, which seeks to curb illicit trade in cigarettes and tobacco products, held by the Senate Committee on Ways and Means chaired by Senator Sherwin Gatchalian.
Pike has led successful and high-profile international cases against fraud, trade crime, foreign bribery, corruption, and money laundering. He has provided advice on fighting illicit trade to the governments of Australia, Papua New Guinea, Timor Leste, and Pakistan, among others. He helped the Australian Retailers Association establish Australians to Stop Counterfeiting and Piracy (AUSCAP), a coalition of industry groups, businesses, and trademark owners dedicated to stopping illegal trade.
Australia has one of the most restrictive tobacco and vaping policies in the developed world, with its government raising excise taxes on tobacco by 800 percent since 2010. A pack of legal cigarettes in Australia now costs three times more than a pack of illicit cigarettes. Pike revealed that Australia’s excise tax collections dropped precipitously from $16.3 billion in 2020 to just $7.4 billion—a 55-percent decrease in just five years.
In the Philippines, a pack of smuggled cigarettes costs as low as P40, which is almost three and a half times cheaper than a pack of legal cigarettes that retails for around P140. After increasing substantially in the first few years after the enactment of the landmark Sin Tax Law, the Philippine government’s excise tax collections have declined sharply.
Collections fell from P176 billion in 2021 to P160 billion in 2022 and further to P135 billion in 2023. In 2024, collections dropped further to P134 billion.
Information presented during a previous hearing revealed that adult smoking rates in the Philippines surged from 18.5 percent in 2021 to 23.2 percent in 2023 after plateauing for nearly a decade. “This suggests that the price disparity between legal and illicit cigarettes is attracting new smokers and driving the black market in your country,” Pike said.
After local e-cigarette industry representatives present during the hearing estimated that illicit vaping products account for up to 80 percent of the market in the Philippines, Pike said Australia has a worse situation, no thanks to the government’s failed policy. “Australia has seen illicit cigarette sales surge to over 40 percent and illicit vape sales to over 95 percent—and that’s after a huge increase in law enforcement funding and focus,” he said.
In the past two years, Pike said over 200 arson attacks on shops and warehouses tied to illegal tobacco have occurred in his home state of Victoria. An unprecedented spate of homicides, kidnappings, extortion, armed robberies of legal tobacco, and arson attacks has been perpetrated by criminal gangs fighting over the huge profits generated by the lucrative illicit tobacco and vapes black market.
He recommended a three-pronged approach to counter illicit trade in tobacco and vaping products in the Philippines. “The Philippines has the chance to get this right. By adopting a proportionate, evidence-based approach, the Philippines can reduce smoking, stabilize revenues, and keep its citizens safer and healthier,” Pike said.
First, set an appropriate tax rate to suppress the key driver of illicit trade. The revenue returns for both Australia and the Philippines have followed a classic “Laffer Curve” response in which the sweet spot where the excise rate for tobacco maximized revenue returns was reached some years ago, Pike said.
“Economic theory shows that further tax increases will not increase revenues, it will only accelerate the decline. Both of our governments have misread the effect the explosion of the illicit market would have on returns,” he said.
Pike said while pulling the taxation lever to reduce public health risks, curb tobacco use and generate revenue makes sense in principle, he believes the Australian and Philippine governments pulled that lever too far and have unbalanced the market. “Australia’s policy mistakes should be a flashing red light for Philippine regulators. We’ve seen the chaos that follows when taxation overshoots its mark.”
Second, strengthen enforcement and prosecution. Pike noted that Australia and the Philippines face similar difficulties in border protection. Both countries have vast coastlines with many remote locations that serve as windows for illicit products. The Philippines is located in the middle of several countries that are key sources of illicit tobacco, including China, Cambodia, Vietnam and Indonesia, he said.
“While this new tobacco bill includes some welcome enhancements for law enforcement, the greatest help you could provide [law enforcement agencies] is to freeze or reduce the excise rate, thereby suppressing the key driver of illicit trade. Prevention is always better than the cure,” he said.
Third, consider tobacco harm reduction strategies. Pike recommended incentivizing reduced-risk nicotine alternatives including vapes through proportionate tax measures combined with education campaigns to encourage more Filipino smokers to switch to safer products.
