Economists Dr. Arthur Laffer and Prof. Ashok Kaul have advised the Philippine government to implement risk-proportionate taxes on smoke-free nicotine products. This policy shift aims to curb smoking rates and secure state revenue while weakening the black market for smuggled cigarettes.
Dr. Laffer, former economic advisor to US President Ronald Reagan, warned that excessive excise taxes in the Philippines have already caused tax revenues to fall while boosting the illicit cigarette trade. He noted that overtaxing tobacco products drives consumers to the black market, stripping the government of regulatory control and funding.
According to Dr. Laffer, overtaxing a product causes governments to lose control of the market and lose revenues, leading to more people buying illicit cigarettes. He pointed to Ireland's steep tax hikes, which triggered a surge in smuggling without reducing smoking rates.
Sweden Proves the Power of Risk-Proportionate Taxes
Prof. Kaul, a former German delegate to the OECD, highlighted Sweden's tax model as a blueprint for public health. By keeping taxes on smoke-free alternatives low compared to combustible cigarettes, Sweden cut its smoking rate from 15% to 5.3% over 15 years, putting it on track to become the world's first smoke-free nation.
A wide tax gap between traditional cigarettes and lower-risk alternatives is necessary to encourage consumers to switch. Both experts concluded that a balanced tax policy, paired with strong border enforcement, will protect public health and secure government revenues in the Philippines.
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