Illicit Tobacco Trade Costs Mexico $650 Million Annually
The illicit tobacco market in Mexico is resulting in over 13 billion pesos ($650 million) in lost tax revenue each year, while simultaneously empowering organized crime networks, according to a new study by the Colegio de México (Colmex), reports 24brussels.
The report, titled Illegal Cigarettes and Organized Crime (Colmex, 2025), reveals that one in five cigarettes consumed in Mexico is illegal, ranking the country among the hardest hit globally. This contraband not only undermines public revenue but also distorts market competition and funds criminal organizations.
“The high cost of Mexico’s special excise tax (IEPS) for legal companies makes illicit sales more attractive,” the study asserts. It highlights that low prices and insufficient regulatory oversight have rendered contraband a highly lucrative venture. Data from the National Institute of Public Health (2024) indicates that 18.2 percent of cigarettes smoked in Mexico derive from the illegal market.
The Colmex study indicates organized crime syndicates have increasingly turned to illegal tobacco as a funding source to facilitate their operations in narcotrafficking, human trafficking, and money laundering. The report identifies two primary smuggling routes: one originating from Asia and the other from domestic production. The Sinaloa and Jalisco New Generation cartels reportedly dominate this trade, posing significant risks to both public safety and economic governance. “The problem has even been acknowledged by the U.S. government in its national security reports,” the study added.
Proposals for policy adjustments are controversial. The Mexican government intends to increase the IEPS on cigarettes from 160 percent to 200 percent, along with an 80 percent hike in the specific quota as part of the 2026 budget initiative. Experts warn that such increases may further escalate legal prices, thereby expanding the opportunities for illicit sales.
Meanwhile, law enforcement continues its efforts against this growing problem. Recently, the Attorney General’s Office confirmed that a regional control unit in Campeche incinerated 5.9 million illegal cigarettes, alongside confiscating 246.6 grams of marijuana and 108 items associated with 13 ongoing criminal investigations.
The Colmex study emphasizes how the illegal tobacco trade has become a remarkably profitable channel for organized crime in Mexico, depriving the state of crucial revenue while raising questions about the sufficiency of tax hikes and enforcement measures to effectively combat such a vast black market.
