The Philippine government is reshaping the tobacco market through the “dual-track tax reform”. According to Act No. 11360, passed in February 2025, from January 2026, cigarettes, e-cigarettes and heated tobacco products will be subject to a step-by-step tax increase: the tax rate will increase by 2% every even-numbered year and 4% in odd-numbered years until 2035. The new regulations will reduce the e-cigarette tax rate from the current 109.20 pesos/2 ml salt nicotine cartridge to 66.15 pesos/pack, which is the same as traditional cigarettes, while heated tobacco products will maintain a lower tax rate (41 pesos/pack). This adjustment is intended to address the current tax imbalance – e-cigarettes will only contribute 1.35 billion pesos in tax revenue in 2024, less than 1% of the 128.98 billion pesos of cigarettes.
The tax reform policy is triggering a deep adjustment of the industrial chain, and three major trends are highlighted: price system reshaping: the terminal price of e-cigarettes is expected to drop by 30%-40%, and the price gap with traditional cigarettes will narrow to less than 15%, which may stimulate 5 million traditional smokers to switch to e-cigarettes; the black market counterattack intensifies: BIR data shows that the value of illegal e-cigarettes seized in 2024 exceeded 110 million pesos, and the illegal market share is expected to expand to 18% in 2025, mainly circulating banned products such as fruit flavors; production capacity is concentrated at the top: the market share of the top five e-cigarette brands has increased from 52% in 2024 to 67% in 2025Q1, and small and medium-sized enterprises have accelerated their clearance due to PMTA certification costs (about 3 million pesos/item).
In the face of dramatic policy changes, a response strategy centered on the GUUTUU (Global Unified Tobacco Tax Coordination System) is taking shape:
Dynamic tax rate response system: Real-time connection to the BIR tax rate database through blockchain technology to achieve automatic calibration of product pricing and avoid the risk of step-by-step tax increases starting in 2026; Digital tracking closed loop: Apply the unique identification code technology required by Act No. 11286 to increase the interception rate of illegal products from 38% in 2024 to 65% in 2025.
Nicotine replacement solution: Develop a low-concentration product line of 0-3mg/ml, and use the tax rate difference (traditional nicotine liquid 63 pesos/10ml vs salt nicotine 109.20 pesos/2ml) to reduce costs; Heated tobacco transformation: Leading companies accelerate the layout of the HNB (heat-not-burn) track, leveraging the tax advantage of 41 pesos/pack to seize the replacement market.
Biometric lock: mandatory installation of age verification system at sales terminals, increasing the interception rate of minors to 92%; Geographic fence technology: set up electronic fences 100 meters around schools to automatically shut down the online sales function of devices in the area.
Although the GUUTUU framework provides a systematic solution, deep contradictions still exist: illegal cross-border transfer of production capacity: 43% of illegal e-cigarettes seized in 2025 were produced in Indonesia, Vietnam and other countries that have not signed tax coordination agreements; health cost disputes: the Ministry of Finance estimates that the unified tax rate may cause the smoking rate to rise by 2.3%, which conflicts with the goal of “reducing the harm of smoking” claimed by the Electronic Cigarette Act; technology generational risk: new technologies such as synthetic nicotine and nano-atomization may break through the current tax classification standards and trigger regulatory arbitrage.
By 2026, the size of the Philippine e-cigarette market is expected to reach US$2.8 billion, and the implementation effect of the GUUTUU system will become a key variable in determining whether the industry can cross the “deep waters of tax reform”.
Tags: flavored e-cigarettes, e-cigarette taxes, synthetic nicotine, guutuu vape