The recent study by Action for Economic Reforms (AER), in partnership with the Economics for Health program of Johns Hopkins Bloomberg School of Public Health, shines a much-needed light on a longstanding but often ignored national concern—the illicit tobacco trade. Drawing data from eight major cities across the country, the study offers a clear and confirmatory conclusion: Mindanao, particularly Zamboanga and General Santos, has become the epicenter of the Philippines’ illicit cigarette trade.
The findings are sobering. In both Zamboanga and General Santos, more than half of the cigarettes sold are illicit—either smuggled, underpriced, or bearing fake or missing tax stamps. In Zamboanga City alone, nearly 80 percent of cigarette packs were sold below the applicable tax price, while up to 96 percent of inspected packs carried fake or missing tax stamps. These two cities, identified as key dropping points for smuggled cigarettes, serve as gateways for illegal products entering the country through porous southern borders.
Yet, while the AER study deserves praise for exposing the gravity of the problem, it also opens a much larger conversation—one that goes beyond what the data shows.
The Unanswered Questions
First, who controls this billion-peso shadow economy?
The study rightfully attributes Mindanao’s illicit trade problem to weak enforcement, porous borders, and cultural tolerance for “backdoor trading.” But it stops short of identifying the key actors behind this illicit supply chain. Field accounts and community monitoring suggest that powerful political figures, private financiers, and even armed groups are directly or indirectly involved in the smuggling and distribution of illicit cigarettes.
If true, this transforms the issue from one of weak enforcement into one of state complicity and protection rackets. The tobacco black market, in such a case, does not simply evade taxes—it fuels local power structures, finances armed groups, and sustains cycles of corruption and violence.
The AER study makes a passing reference to the case of Paraguay, where the tobacco trade was infiltrated by organized crime and mafias. That comparison should alarm us. What is unfolding in southern Mindanao may be eerily similar—a network of illicit profit that blurs the line between business, politics, and criminal enterprise.
The Missing Links in the Supply Chain
Second, the study does not map out the domestic supply and distribution chain. It identifies smuggling routes—cigarettes manufactured in Indonesia, shipped to Malaysia, and transported to Sulu, Zamboanga, and General Santos—but stops at the shoreline.
Who transports these goods inland? Who stores, distributes, and protects them? These questions are crucial if we are to dismantle not only the retail layer but the invisible architecture of the illicit trade that stretches from local ports to warehouses and sari-sari stores.
A proper understanding of this domestic chain would expose the intermediaries—the financiers, the middlemen, and the protectors—who keep this lucrative shadow market running.
Regional Cooperation Gaps
Third, the study acknowledges the cross-border dimension but does not fully address the lack of robust regional cooperation with Malaysia and Indonesia. Both are identified as primary sources of smuggled cigarettes entering through the Sulu Archipelago and southern ports, yet there is still no structured bilateral or multilateral framework for joint enforcement or intelligence sharing.
This gap is critical. Smuggling thrives not only on weak local enforcement but also on the absence of synchronized regional efforts. The Philippine government must urgently engage its ASEAN neighbors to trace manufacturing sources, share maritime surveillance data, and conduct joint interdiction operations.
The Enforcement Blind Spot
Fourth, while AER’s data collection is comprehensive, its methodology reveals limited coordination with frontline enforcement agencies—the Philippine Navy, Coast Guard, National Police, and Bureau of Customs—which hold critical intelligence on smuggling routes and seizures. Without this integration, research findings risk underestimating the operational realities of illicit trade.
It is essential that future investigations connect with these agencies, not only to validate field data but also to ensure accountability within enforcement institutions themselves—many of which have been accused of turning a blind eye to smuggling or, worse, profiting from it.
Mindanao’s Case: More Than Just a Tax Problem
The AER study reinforces what public health and fiscal reform advocates have long maintained: weak governance, not high tobacco taxes, fuels illicit trade.
Despite uniform tax rates nationwide, illicit activity remains low in Metro Manila, Luzon, and the Visayas—areas with stronger oversight and institutional integrity. It is in Mindanao, where maritime borders are porous and local politics complex, that the illicit trade thrives.
This directly debunks the tobacco industry’s narrative that raising taxes causes smuggling. As AER researcher Daffodil Santillan explained, “The evidence shows the real issue is weak law enforcement and regulatory oversight, especially at ports and borders. Lowering tobacco taxes will only make cigarettes cheaper and Filipinos sicker.”
A Brewing Policy Disaster in Congress
The study’s release comes at a critical time. In early 2025, the House of Representatives hastily passed House Bill 11360, which seeks to reduce tobacco excise taxes, along with bills lowering levies on vapes and heated tobacco products (HB 5207, 5212, and 5364).
AER warns that these rollbacks will reward smugglers, cost lives, and erode public revenue, reversing a decade of progress achieved through tobacco tax reforms. Since 2012, those reforms have reduced adult smoking prevalence from 29.7% in 2009 to 19.5% in 2021, while significantly increasing funding for health programs under the Universal Health Care Act.
“Tobacco tax reforms save lives and fund the healthcare of the most vulnerable Filipinos,” said Senator Risa Hontiveros, chair of the Senate Committee on Health and Demography. “Lowering taxes at this point, when our economy is struggling and the government needs revenues, may not be a good idea.”
The policy direction Congress is taking—under pressure from industry lobbyists—risks undoing both the fiscal and public health gains of the last decade.
Zamboanga: A Case of Local Resolve and Systemic Rot
Zamboanga City, a focal point of the AER study, illustrates both the challenge and potential of local leadership. Former mayor and now Vice Mayor Beng Climaco recalled leading “midnight operations” to confiscate smuggled goods and investigate Customs officials. As she noted, “Smuggling thrives when leaders turn a blind eye.”
Her words encapsulate the heart of the issue: that beyond technical fixes, the fight against illicit trade demands political courage and institutional integrity.
From Revenue Loss to National Security Threat
Beyond the billions lost in taxes each year, the illicit tobacco trade poses a national security and governance threat. It undermines legitimate businesses, fuels corruption, and—if linked to political or armed networks—directly threatens state authority.
Moreover, the sale of cheap, untaxed cigarettes increases access among the poor and youth, reversing public health progress and exposing millions more to the harms of smoking.
A Call for a Deeper, Bolder Investigation
The AER study is an important first step, but the next phase must go further—toward forensic-level investigation of financial flows, political protection networks, and enforcement failures.
This effort must be supported by coordinated action from the Bureau of Internal Revenue (BIR), Bureau of Customs, Coast Guard, and local governments, coupled with civil society oversight to ensure transparency and accountability.
AER’s policy recommendations—particularly the call to upgrade the current tax stamp system into a digital track-and-trace platform, license all retailers, and strengthen regional cooperation—are practical and urgently needed. But these reforms will only succeed if backed by genuine political will.
Conclusion: Smoke Signals of a Deeper Crisis
Illicit cigarettes are not just an economic or regulatory issue—they are a symptom of deeper systemic decay in governance and law enforcement. The AER study confirms what many already know but few dare to confront: that the shadows of smuggling are intertwined with the corridors of power.
To truly curb illicit trade, the Philippines must move beyond statistics and bravely follow the money, name the protectors, and prosecute the untouchables.
Only then can we reclaim both our public health and our national integrity from the smoke of corruption.