Thailand loses nearly Bt30bn a year as illegal tobacco market surges

A policy report by the EU-ASEAN Business Council, titled Driving ASEAN Action Against Illicit Trade: A Strategic, PED-aligned Blueprint for the Philippines’ 2026 ASEAN Chairship, says illicit trade is intensifying in many parts of the world, particularly in Southeast Asia, where trade and logistics links are expanding rapidly.

While trade liberalisation has helped stimulate economic growth, it has also created opportunities for smuggling networks and illegal trade to expand alongside it.

Illicit trade is therefore regarded as a strategic risk to the ASEAN economy, with the potential to undermine the region’s sustainable growth in terms of economic development, security and governance. In addition to consumer goods, medicines, alcoholic beverages, agricultural products and oil, another product category heavily affected by illicit trade is tobacco. 

Tobacco is increasingly becoming one of the fastest-growing illegal markets in several ASEAN countries and is causing significant economic damage.

In its report, the EU-ASEAN Business Council recommends that the response must go beyond enforcement alone. It says a more comprehensive, system-wide approach is needed, combining suppression efforts with structural mechanisms to address the problem more effectively. 

Key measures proposed to tackle illicit trade in ASEAN include:

• Strengthening cooperation among government agencies and the private sector to improve the effectiveness of efforts against illicit trade, with a focus on intelligence-sharing between agencies and the development of joint risk indicators.

• Using digital technology to improve transparency across supply chains, such as digital traceability systems, data integration through the ASEAN Single Window, and the use of AI and data analytics to assess inspection risks.

• Encouraging member states to develop more harmonised legal and regulatory frameworks, such as licensing systems for manufacturers, importers, exporters and distributors, establishing databases of legitimate operators, requiring products to clearly specify their destination market, and increasing penalties for large-scale illicit trade.

One example cited is the Philippines, which requires exported tobacco products to carry tax markings and legal labelling that comply with the laws of the destination country under Republic Act No. 10643. Packaging must meet the requirements of the destination market before export.

The measure helps reduce the risk of product diversion and leakage into other markets, while also helping prevent illicit trade and improve supply-chain transparency.

For Thailand, the illicit trade situation mirrors trends seen in many other ASEAN countries, especially in relation to illegal tobacco products. Thailand is facing a rapid expansion of the illicit tobacco market, affecting state tax revenue, fair business competition, the stability of domestic supply chains and consumer safety.

According to the latest industry study, illegal tobacco products account for about 25% of total tobacco consumption in the country, resulting in the loss of nearly 30 billion baht in tax revenue each year.

The rise in illegal tobacco products has had a direct impact on businesses operating lawfully, as smuggled tobacco products are often sold at prices far below properly taxed goods, creating unfair competition in the market. 

In addition, many illegal tobacco trading networks are linked to influential figures or transnational criminal organisations, exploiting legal loopholes, false declarations or smuggling routes through third countries before distributing the products domestically.

The suppression of illegal tobacco has therefore become a key government agenda item. This is reflected in the fact that Prime Minister Anutin Charnvirakul personally travelled to announce an operation targeting a major illegal tobacco network in southern Thailand, where authorities seized more than 20 million items, with total fines exceeding 1 billion baht. 

The move underscored both the scale of the problem and the determination of state agencies to dismantle smuggling networks.

However, while crackdowns may help curb the distribution of illicit goods in the short term, a long-term solution must focus on breaking the entire illegal tobacco supply chain, from import channels and transport to distribution networks and online sales. 

This must be accompanied by improvements to laws and customs procedures to close loopholes used to smuggle goods from neighbouring countries such as Vietnam, as well as stronger cooperation between domestic and international law enforcement agencies.