Cigarette prices set to rise in Middle East

Rhys Jones Cigarette prices in the GCC are expected to increase by up to 10% in 2005, Arabian Business can reveal. The move follows a meeting of the Arab Gulf Cooperation Council (AGCC) Economic and Financial Committee in Jeddah, where GCC countries agreed to impose a value-added-tax (VAT) on tobacco products.

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By  Anil Bhoyrul Published  January 30, 2005

Rhys Jones Cigarette prices in the GCC are expected to increase by up to 10% in 2005, Arabian Business can reveal. The move follows a meeting of the Arab Gulf Cooperation Council (AGCC) Economic and Financial Committee in Jeddah, where GCC countries agreed to impose a value-added-tax (VAT) on tobacco products. The committee discussed the issue at length during the meeting and it was unanimously agreed that there is an urgent need to curb the massive consumption of tobacco in GCC states. However, British American Tobacco’s (BAT) Arabian Gulf operation believes the tax should be imposed gradually to reduce the risk of huge growth in the black market. “We [BAT] don’t oppose the new tax but believe it should be introduced gradually,” said Nasser Al Nasser, corporate and regulatory affairs manager for the Arabian Gulf, BAT. “This is because a new tax could increase the illicit trade in tobacco products in the region. If it’s introduced in one shot, illicit activities will definitely increase,” he explained. BAT research shows that 35% of all cigarettes sold in the UAE are either duty-non-paid or counterfeit. “Illicit trade causes losses to the government and the industry as a whole,” continued Nasser. “BAT would like to be more involved in the whole process. We can help government’s with this because it’s a complex issue and we are the key players. At the end of the day it’s their (the government’s of the GCC countries) decision,” he added. Arabian Business understands that a committee has already been formed to study the implementation of the tax on tobacco products and has been entrusted with the task of submitting a detailed study of the consequences of its introduction. The committee has been given 45 days to come up with proposals, which will then be discussed among the Economical and Financial Committee members. As well as cigarettes, cigars and other derivatives, VAT is also set to be levied on other “harmful” products during 2005, and will be “probably be followed by a nominal VAT on other consumer products in later stages” in the GCC, said the Dubai Chamber of Commerce and Industry’s (DCCI) economic bulletin. It is understood that GCC countries have officially agreed to impose the levy and it is only a matter of finalising a date to start collecting the tax. The move awaits the enforcement of the uniform customs duty at between 5% and 15% throughout the six GCC countries. The expected rise in prices follows growing health concerns over tobacco consumption in the Middle East. “[Tobacco] is relatively inelastic, although there are some economists who think that if the tax on tobacco products is sufficiently high you discourage teenagers who do not have the discretionary money to spend, you discourage them from acquiring the habit,” said Randa Azar, chief economist, National Bank of Kuwait. “So you could save a lot of people health wise by imposing high taxes on tobacco products. From a health perspective it is good because you discourage young people from acquiring the habit and even poor people who have the least potential to pay for health care,” she added. Adding a VAT to tobacco-related products will not necessarily reduce consumption significantly, but it will increase government revenues, according to Azar.

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