05 March, 2014

New warning over GCC tobacco tax

Press reports that GCC finance ministers are planning to effectively double the tax on tobacco within two

Fresh concern that 100% increase in tobacco duty will fuel illicit trade by gangs targeting young people, and grow counterfeiting

Dubai, 5 March, 2014: Anti-smoking campaigners urging a 100% increase in duty on tobacco products in the GCC have been warned that the move would fuel illicit trade in the region by gangs targeting young people, and lead to a growth in cigarette counterfeiting, impacting on local businesses.

Press 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.

The claim, however, is in contrast to the main findings of a white paper published last year on proposals for an additional 100% GCC duty on tobacco, the impact on smoking, and the effects on trade and social stability.

Two contributors to the report, which came from a round table discussion in Dubai last April, have now repeated the warning that an overnight tobacco price hike could have negative consequences.

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% 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, Dubai, one of the UAE's leading law firms. 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."

Health officials in the GCC point to the low cost of tobacco in the region - with packs of 20 cigarettes at around AED7 compared with costs of AED48 in the UK - as justification for the raising of tobacco tax to reduce smoking. The white paper found no evidence that a 100% increase in duty on tobacco, producing a sharp overnight increase in cigarette prices, will affect overall consumption levels or smoking propensity.

Circulated to GCC finance ministers, health officials, police, and customs authorities, it spotlighted 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.

© Press Release 2014