MANILA, Philippines — A leading international security expert warned Philippine lawmakers that over-taxing cigarettes and vape products risks supercharging the country’s black market, threatening both public health and government revenues.
Rohan Pike, a former Australian police and customs official with deep experience in anti-smuggling and anti-corruption work, issued the warning following a Senate hearing on House Bill 11360, which aims to curb illicit trade in tobacco products.
Speaking before the Senate Committee on Ways and Means chaired by Sen. Sherwin Gatchalian, Pike urged the Philippines to learn from the mistakes of Australia, where harsh tobacco policies have triggered a surge in black market activity.
Pike explained that after years of sharp tax hikes, Australia has seen its excise collections collapse. Despite an 800-percent increase in tobacco taxes since 2010, the Australian government’s tobacco tax revenues fell from $16.3 billion in 2020 to just $7.4 billion last year, a stunning 55-percent decline. Legal cigarette packs in Australia now cost three times more than illicit ones, creating enormous incentives for smuggling and counterfeit sales.
The result has been a wave of criminal violence. Pike cited more than 200 arson attacks on shops and warehouses linked to illicit tobacco in his home state of Victoria over the past two years, along with a surge in homicides, kidnappings, extortion, and armed robberies. He described these events as a cautionary tale for the Philippines, warning that overshooting on taxation creates chaos and fuels criminal networks.
“Pulling the taxation lever too far can unbalance the market and cause unintended consequences,” Pike warned.
“Australia’s policy mistakes should be a wake up call to Philippine regulators. We’ve seen the chaos that follows when taxation overshoots its mark,” he added.
In the Philippine context, the signs are already alarming. Government excise tax collections from tobacco have dropped sharply, from P176 billion in 2021 to just P134 billion this year. Meanwhile, a pack of smuggled cigarettes sells for as little as P40, compared to around P140 for legal cigarettes, making illicit products far more attractive to price-sensitive consumers. Adult smoking rates, which had plateaued for years, jumped from 18.5 percent in 2021 to 23.2 percent in 2023, indicating that the growing black market is not only cutting into legal sales but also drawing in new smokers.
Local e-cigarette industry representatives told the Senate that illicit vaping products now account for up to 80 percent of the Philippine market, a figure even higher than the worrying levels seen in Australia, where illegal vape sales exceed 95 percent.
Pike advised Philippine policymakers to take a balanced, evidence-based approach. He emphasized that both Australia and the Philippines have passed the optimal point on the so-called Laffer Curve, where tax rates maximize government revenue. Raising taxes further, he argued, will only deepen revenue losses by driving more consumers into the black market.
He also stressed the need for stronger law enforcement, noting that the Philippines’ geography — marked by vast coastlines and proximity to major illicit tobacco source countries like China, Cambodia, Vietnam, and Indonesia — makes border control challenging. He welcomed provisions in House Bill 11360 aimed at enhancing enforcement but argued that reducing the tax burden would do more to suppress illegal trade.
Pike called on Philippine authorities to adopt tobacco harm reduction strategies. Rather than penalizing all nicotine products equally, he urged the government to create tax incentives for less harmful alternatives like vapes, coupled with public education campaigns, as part of a pragmatic effort to reduce smoking prevalence while safeguarding revenues and public safety.
