LAWMAKERS are advocating a temporary suspension of annual tax hikes on cigarettes and other tobacco products, citing concerns over the rise of illicit trade and its economic impact.

During its Tuesday hearing, the House Committee on Ways and Means vowed to consult with stakeholders before deciding on the proposed moratorium on tax increases for cigarettes and other tobacco products.

The proposed amendment to the National Internal Revenue Code would suspend scheduled annual tax hikes on cigarettes, heated tobacco, and vapor products for 2026.

Under the proposal, the tax rates would resume their regular increments starting in January 2027, increasing by 4 percent to 5 percent triennially or every three years thereafter.

During his committee hearing, House Committee on Ways and Means Chairman Joey Sarte Salceda highlighted growing concerns over a surge in the illicit tobacco trade, which he estimated to have cost the government up to P129 billion in the past three years.

“A simple search online shows just how easy it is to purchase bulk cigarettes at one-third the price of taxed, legal cigarettes,” Salceda said.

Salceda also referenced the findings of the National Nutrition Survey, which reported a 5-percent increase in smoking prevalence between 2021 and 2023. The rise is attributed primarily to increased vaping, though a slight uptick in adult smoking was also noted.

“This does not square with the sharp reduction in revenues from cigarettes,” Salceda remarked, suggesting that high taxes may have driven smokers toward cheaper, untaxed options or vaping products.

While Salceda acknowledged the critical role of tobacco taxes in generating government revenue and deterring smoking, he emphasized the need to address unintended consequences, such as the growth of the illicit market.

“My professional opinion as an economist is that there has been a shift from licit to illicit cigarettes due to the large price differential caused partly by taxes,” Salceda said. Salceda called on the Department of Finance (DOF) to present its official position on the matter, as it is the primary agency responsible for implementing the country’s tax policies.

Under the proposed moratorium, the annual excise tax increments—ranging from 4 percent to 5 percent for cigarettes, heated tobacco products, and vapor products—would be paused for 2026. The increase would resume in January 2027, with adjustments implemented every three years.

Also, under the proposed legislation, all vapor products—regardless of nicotine content or formulation—will be subjected to an excise tax of P60 per milliliter. This includes nicotine salts, freebase nicotine liquids, and nicotine-free products. The excise tax will take effect immediately upon the enactment of the law.

In addition to taxing liquid substances, a separate ad valorem tax of 20 percent will be imposed on electronic nicotine and non-nicotine delivery systems sold without accompanying liquid solutions. The tax will be applied based on the net retail price of each device, excluding the excise tax and value-added tax (VAT).

The excise taxes on vapor products and devices will be subject to a 5-percent increase starting January 1, 2027, and every three years thereafter.