CANACINTRA Flags Job and Tax Risks from Higher Tobacco IEPS

Mexico’s National Chamber of the Transformation Industry (CANACINTRA) has warned that a proposed increase to the Special Tax on Production and Services (IEPS) for tobacco could expand the illicit cigarette market, reduce tax revenues, and put jobs at risk.

The federal government’s 2026 Economic Package includes a proposed hike to the IEPS on tobacco, which would add at least MX$20 (US$1.08) per pack. CANACINTRA noted that previous tax increases have not curbed tobacco consumption but instead shifted demand toward unregulated products.

The chamber cited the 2010 tax hike of MX$7 per pack, which was projected to generate MX$42 billion in revenue the following year. Instead, only MX$30 billion were collected, as illicit cigarettes rose to 20% of the national market.

A 2025 study from El Colegio de México (Colmex), Cigarrillos Ilegales y Crimen Organizado, reported sustained growth in Mexico’s illicit tobacco market, driven by lower prices and the absence of effective tax and health regulations.

“It is not hypothetical. History in Mexico has already shown that higher taxes incentivize tobacco smuggling, fostering a sector that evades taxes and promotes consumption among minors,” said María de Lourdes Medina Ortega, President, CANACINTRA.

CANACINTRA urged legislators to reconsider the proposal, warning of potential negative impacts on economic, fiscal, and public health outcomes. The chamber called instead for comprehensive information campaigns and prevention strategies to address smoking.

The chamber also highlighted international precedents. In Ecuador, an 80% tax hike on tobacco between 2014 and 2022 reduced the legal market while expanding the illicit share from 5% to 80%. Similar outcomes have been observed in Colombia, Nicaragua, Panama, and Malaysia, where tax increases led to higher sales of illegal cigarettes.

According to CANACINTRA, Mexico’s illicit tobacco market already accounts for more than 20% of total consumption, causing an annual fiscal loss of MX$13–15 billion. The group warned that a further tax increase would likely push more consumers toward the black market.

“The tobacco industry is a strategic sector for the country, particularly in regions where cultivation and production occur. We must not repeat past mistakes. Combating tobacco consumption requires structured strategies, not new taxes,” Medina Ortega said.