Tobacco Asia

20 tobaccoasia Issue 1, 2026 January / February minimum cigarette tax, despite growing evidence that tobacco's price elasticity has increased signifi‑ cantly in advanced economies. An analysis pub‑ lished by the Tax Foundation states that elasticity estimates frequently used by European policymak‑ ers are outdated—based on data as old as 2006. Updated models indicate that demand now responds more strongly to price increases. If this is accurate, the EU's revenue forecasts might be overstated by billions, and in cases of extreme elasticity, tax hikes could even decrease overall cigarette tax collections. "Ten years ago, my job was complexity [level] 5; now it's 50," said Stefano Santi, senior director external affairs in economic and fiscal policy at Phil‑ ip Morris International, urging regulators to differ‑ entiate taxes between combustible and smoke‑free products. "If you raise taxes too fast, consumers will find cheaper, often illicit alternatives." Recent EU data support Santi's warning. In several member states, including Hungary and parts of Eastern Europe, excise instability and cross‑ border disparities have driven consumers to illegal market channels—reducing the legal market but not significantly lowering overall consumption. BAT's Kingsley Wheaton went further, tell‑ ing Euractiv that if the EU proceeds with its steep‑ est proposed increases, Europe risks "becoming another Australia," referencing the collapse of the legal tobacco market there and the explosive growth of criminal networks. In Australia, the Australian Criminal Intelligence Commission es‑ timates illicit tobacco has drained A$3.3 billion (US$2.1 billion) in excise revenue, with organized crime responsible for more than 200 firebombings linked to territorial disputes. Wheaton emphasized that the Commission's plan could reduce access to less harmful products as smokers transition to them. "Smokeless prod‑ ucts are not risk‑free," he said, "but they are sig‑ nificantly less harmful than smoking and need to remain accessible." Single‑stick sales further complicate the situ‑ ation. Despite bans in countries like Ethiopia, Ni‑ geria, and South Africa, the BMJ study confirms that single cigarettes are still widely available and are often undershifted more aggressively than packs. For young smokers—who are highly sen‑ sitive to prices, single‑stick availability can offset even well‑designed tax increases. Maria Angelova, head of legal and HR at Socotab Frana SA, reminded the Brussels audi‑ ence that excise taxes not only influence consumer choices but also affect agricultural livelihoods. "Tobacco is an agricultural product that supports families," she said. "Nowhere else in the world [meaning Africa] is raw tobacco subject to excise tax. Making local tobacco less affordable than im‑ ported tobacco doesn't help anyone." It should be noted that Poland recently implemented taxes on raw tobacco; however, that is currently challenged in court. Many African governments are now increas‑ ing tobacco taxes: Mauritius by 10%, Uganda dou‑ bling taxes on imported cigarettes, Senegal consid‑ ering an increase from 70% to 100%, and Egypt raising excise by 50 piastres (US$1.06) with 12% annual hikes planned through 2027. However, even where intentions are strong, the BMJ paper shows that the tobacco industry's pricing strate‑ gies can undermine progress, suggesting that tax enforcement must evolve along with tax rates. And markets with significant illicit activity face a bigger challenge: without strong track‑and‑ trace systems, border transparency, and reliable tax collection, raising rates alone may generate less revenue, not more. Global consequences emerging In Southeast Asia, the region most impacted by illegal tobacco, authorities are facing a more un‑ stable and connected environment. CME's fiscal‑ loss analysis warns that smuggling, counterfeit production, and cross‑border arbitrage are weak‑ ening public finances during a time when govern‑ ments are still dealing with post‑pandemic deficits. In Indonesia—where illegal cigarettes make up more than 10% of the market—lost revenue could instead be used to support an extra 42.6 million people through the national nutrition program. Malaysia's yearly losses from illegal trade nearly match the government's estimated savings from recent fuel subsidy reforms. In the Philip‑ pines, illegal tobacco costs the treasury more than the national disaster preparedness fund. These dynamics shape global debates on ex‑ cise taxes. When Philip Morris, BAT, and Japan Policymakers are falling behind fast-moving product innovation, as new options like nicotine pouches reshape the market. Credit: Mmaart, CC4.0.

• Cover