Will 100% hike in GCC tobacco tax really inflame fake cigarettes?

Reports that GCC finance ministers are planning to effectively double the tax on tobacco within two years have been welcomed by health officials who say that this would be an effective way to stop children smoking.

Health officials in the GCC point to the low cost of tobacco in the region – with packs of 20 cigarettes at around Dh7 compared with costs of Dh48 in the UK – as one of the reasons for the raising tobacco tax to reduce smoking.

Nevertheless, anti-smoking campaigners are being told that the move could fuel illicit trade in the region by gangs targeting young people, and lead to a growth in cigarette counterfeiting, impacting on local businesses.

A section of the industry maintains that “an overnight tobacco price hike could have negative consequences”.

In a media statement issued today, it has been noted that a white paper in this regard was published last year on proposals for an additional 100 per cent GCC duty on tobacco, the impact on smoking, and the effects on trade and social stability.

Jonathon Davidson, Chairman of the British Business Group – Dubai and the Northern Emirates, and Managing Partner of Davidson & Co Legal Consultants, commented: “As I have said previously, the overriding objective of any government must be to improve the health of its population, and strengthen revenue streams.”

“But the risk here is still one of increased counterfeit trade derived from organised crime, which would result in a need for increased resources of enforcement, better regulation and stiffer penalties.

“If the GCC went ahead with a 100 per cent increase in duty on tobacco products, the methodology behind this would have to be very well thought out, and the tobacco companies would need to buy into it.”

His concern is shared by another of the white paper contributors, Omar Obeidat, Partner and Head of Intellectual Property at Al Tamimi & Co, a Dubai-based law firm. He said: “Addressing illicit trade should be a step ahead of any tax increase consideration.

“Smuggling is sometimes a by-product of tax increases and so increasing tax on tobacco products is going to have a double impact with the growth of smuggling. Smuggling affects legitimate trade and hits the revenue of the government.

“Whenever you increase taxes or introduce more restrictions, you’re only targeting the companies playing the rules and abiding by the law.  Without addressing illicit trade, you will be offering an advantage to those breaching the law, so that’s why it has to be a level playing field.”

Circulated to GCC finance ministers, health officials, police, and customs authorities, the white paper is said to have highlighted a need for strong measures to protect legitimate and local businesses. It also urged authorities to drive education and awareness programmes to warn people – especially the young – against the risks of smoking, removing the ‘cool factor’ from smoking, and reinforcing tobacco control.

The white paper reported that an estimated 600 billion illegal cigarettes are sold each year worldwide. It said illicit trade also means governments and legitimate businesses lose billions of dollars in revenue each year, while the cost of fighting crime is becoming increasingly expensive.

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