ASEAN governments confront rising losses from illicit tobacco trade across the region. Photo credit: Camelista27, CC1.0.
ASEAN’s six largest economies lost an estimated US$13.1 billion in tax revenue to the illicit tobacco trade during 2024 and 2025, according to a new report from the EU-ASEAN Business Council (EU-ABC) and Euromonitor International.
The report found that illicit products accounted for 24% of all cigarettes and vapes consumed across the ASEAN-6, while illicit operators continued to expand year-on-year profits, reducing government tax collections across the region.
The report comes as Southeast Asian governments contend with economic uncertainty and supply chain disruption linked to the Middle East crisis, pressures that have intensified scrutiny of public finances and economic resilience. Against that backdrop, the report described illicit trade as a growing threat to ASEAN’s long-term growth ambitions.
Among the ASEAN-6, Indonesia recorded the largest estimated tax loss at US$5.6 billion over the two-year period, followed by Malaysia and the Philippines at US$2.5 billion each.
Researchers estimated the illicit tobacco market across the region generated US$12.6 billion in revenue during 2024–2025. Illicit cigarette sales rose 14% over the past year alone, while illicit vape sales climbed 24%.
The report projected the combined illicit market share for cigarettes and vapes will increase from 24% in 2025 to 28% in 2028.
Malaysia recorded the region’s highest illicit cigarette market share at 57% in 2025, making it the only ASEAN-6 market where illegal cigarette sales exceeded legal sales. In the Philippines, illicit products accounted for 86% of vape sales, the highest level among ASEAN markets where vaping products remain legal, including Indonesia and Malaysia. In all three markets, illicit e-vape sales outpaced legal sales.
The report attributed demand for illicit tobacco products to lower prices and easier access, while supply is facilitated by ASEAN’s extensive and interconnected regional trade routes and uneven supply chain oversight which continues to complicate customs enforcement.
According to the study, most illicit cigarettes and vapes sold in Southeast Asia originate within the region, particularly in Indonesia and Cambodia, with additional supply coming from China. Malaysia, Singapore, and Vietnam serve as key distribution hubs.
An earlier EU-ABC study estimated ASEAN’s broader illicit trade market at US$35 billion.
“The scale of illicit trade across ASEAN is often sorely underestimated – and, more worryingly, growing at an alarming pace. Its impacts are wide-ranging, spanning economic, public health, and security challenges. If left unchecked, illicit trade could jeopardize ASEAN’s economic future as a global growth engine,” said EU-ABC executive director Chris Humphrey.
The report said illicit cigarette growth will likely slow over the next three years, but illicit vape sales could expand nearly 9% annually, up from about 7% in previous years.
Illicit cigarette manufacturers frequently use free-trade zones across Southeast Asia to avoid customs duties and regulatory oversight, often transporting goods in small fishing vessels. The report identified several smuggling hotspots within FTZ port areas, including Port Klang in Malaysia, Subic Bay Freeport Zone in the Philippines, Laem Chabang Port in Thailand, and Sabang and Batam in Indonesia.
Researchers said most illicit vapes enter the region from China and can easily pass as ordinary e-commerce shipments because of their compact size and individual packaging.
The report also highlighted online marketplaces and encrypted messaging platforms as major channels for illicit tobacco sales, with many transactions completed offline and paid in cash.
“The decentralized nature of online sales makes it hard to crack down on illicit tobacco operations,” said Firdaus Muhamad, head of consulting for APAC at Euromonitor International. “Sellers can quickly shift between platforms, communication channels, and delivery networks to evade detection.”
The study said inconsistent track-and-trace systems across ASEAN continue to weaken enforcement efforts. While authorities widely consider such systems an international best practice for combating illicit trade, countries across the region apply them unevenly.
The report argued that illicit trade diverts billions of dollars away from government spending priorities such as infrastructure, healthcare, education, and green investment. “The effects are particularly severe at a time when the region is already facing economic pressures and supply chain disruptions linked to the Middle East crisis,” Humphrey said. “Revenue lost to illicit trade reduces the fiscal space available for relief and mitigation measures, while illicit networks continue to exploit weaknesses in regional supply chains.”
The report also warned that illicit tobacco weakens the formal economy by reducing employment, tax contributions, and investment generated by legitimate businesses. “Not only does this create unfair competition, the presence of illicit trade also undermines supply chain integrity, signaling weaknesses in regulatory and law enforcement. Over time, this could diminish ASEAN’s attractiveness to foreign investors and legitimate businesses,” Humphrey said.
In a separate paper released earlier this year, EU-ABC proposed a regional framework to strengthen anti-illicit trade measures during the Philippines’ 2026 ASEAN chairmanship.
“Illicit trade is a regional problem that demands a regional solution,” Humphrey said. “As illicit operators exploit ASEAN’s regional connectivity for illicit trade flows, so should ASEAN leverage its regional platforms for stronger collective enforcement.”
The paper called for stronger institutional coordination, expanded intelligence sharing, closer public-private collaboration and greater use of digital and AI-based customs monitoring tools.
“Illicit trade has been allowed to fester in ASEAN for far too long, giving rise to painful consequences for the region’s communities and economy,” Humphrey said. “While we cannot take back what has been lost, we must act quickly and decisively to protect government revenues, strengthen supply chain integrity, and safeguard ASEAN’s economic resilience. ASEAN’s economic future hangs in the balance.”