Mexico’s Senate is pushing to pass a bill that would increase the country’s tobacco tax, figuring it will not only improve health by discouraging use but also increase the government’s bank account.
It could also fill the accounts of some of the country’s major cartels. Experts say the cartels already have a significant hand in Mexico’s black market for cigarettes and stand to see an even bigger share once the tax begins to bite.
President Claudia Sheinbaum has called for raising the country’s ad valorem tobacco tax from 160% to 200%, with a per-cigarette quota tax that would be nearly doubled by 2030.
The inevitable result would be a bigger black market that cartels can exploit, said Manuel Perez Aguirre, a postdoctoral researcher at the College of Mexico.
“The government, the representatives, are looking for more money, but they are not taking into account the side effects of that,” he said. “It’s a huge thing in terms of money, not for the Mexican government, but it’s a lot of money for the criminal organizations.”
Mr. Perez named the country’s two most prominent cartels, the Sinaloa Cartel and Jalisco New Generation Cartel, or CJNG, as particular players.
He said it’s difficult to guess how much the cartels’ additional take would be, since it would depend on how much consumers turn to the illegal market and how much the organizations control.
There’s reason to imagine a large shift, though.
When tobacco taxes were raised in 2011, illegal cigarettes jumped from just 2% of the market in 2010 to nearly 17% by 2013, according to one study that year. The latest estimate now puts the figure as high as 20%, though it’s unclear how much goes to cartels.
Mexico’s cartels have taken a hit to their income from President Trump’s quick action to shut down migrant smuggling across the U.S.-Mexico border.
Still, the organizations have been increasingly diversifying their activities.
The U.S. government this year has imposed sanctions on cartel associates that the Treasury and State departments have said were engaged in oil theft and timeshare fraud. They also sanctioned a “narco-rapper” who dedicated half of his music streaming revenue to the Cartel de Noreste.
“These cartels continue to create new ways to generate revenue to fuel their terrorist operations,” Treasury Secretary Scott Bessent said in August in announcing the sanctions on CJNG for duping Americans with bogus timeshare sales and maintenance contract offers.
Mr. Perez said it’s no longer accurate to call them “drug cartels.”
“They’re organized crime and they are involved in almost every single topic of the Mexican economy,” he said.
The Trump administration has designated six Mexican cartels, including CJNG and Sinaloa, as foreign terrorist organizations.
The tobacco tax is part of Ms. Sheinbaum’s 2026 economic package, which would also increase tax rates on soft drinks, gambling and lotteries and impose a new tax on violent video games.
She figures it would raise about $750 million in new revenue annually. She has said the money would directly fund health programs, though critics have said the law doesn’t appear to earmark the money that way.
The package passed Mexico’s Chamber of Deputies this month and is now awaiting final action in the Senate.
Caroline Renzulli at the Campaign for Tobacco-Free Kids cheered Mexico’s proposal, saying increasing taxes has been proved to be the most effective way to cut tobacco use, particularly among children.
She pushed back on the cartel worries, attributing them to “greatly exaggerated” claims by tobacco companies.
“In fact, research shows that higher tobacco taxes do not drive illicit trade, but that lax law enforcement, weak penalties and corruption are all contributing factors — underscoring the need for strong tax administration, supply-chain monitoring and penalties for illegal sales,” she said. “Mexico and other countries must stand up to the tobacco industry and act to save lives.”
The opposition to the plan in Mexico has been based on worries of harm to retailers.
The head of the Council for the Development of Small Trade and Family Business figures the tax hike would raise the price of a pack of legal cigarettes to about 100 pesos, or a little more than $5, while a contraband pack sells for 20 pesos on the streets, Mexico Business News reported.
Mr. Perez said the cigarette market is easy for the cartels to penetrate.
Part of that is the ease of slipping illicit cigarettes in from the U.S.
“Goods from the east, China or Japan or Bangladesh or India, many of them pass through to the United States, but your government doesn’t do anything because the end of that chain is not the United States. So they just pass through the United States,” Mr. Perez said.
In an earlier paper in January, he suggested that CJNG produced its own black market product while Sinaloa controlled border smuggling. He has now concluded that the market is so liquid that the border situation and domestic production are complementary.
