Taxing Tobacco

As the GCC begins implementing an excise tax on tobacco, industry insiders urge for measures to ensure illicit trade doesn’t flourish.

- Aarti Nagraj

GCC countries should ensure that excise taxes on tobacco are developed and implemented in a “simple, fair and effective” way to avoid illicit trading in the industry, according to a global tobacco company.

Saudi Arabia implemented a 100 per cent excise tax on tobacco products and energy drinks and a 50 per cent tax on carbonated drinks in June, with other GCC states including the UAE expected to follow suit in the near future.

The move, which comes ahead of the implementation of value added tax (VAT) across the GCC next year, is aimed at both increasing government revenues and improving the health of the populace.

According to the World Health Organisation (WHO), the imposition of such taxes can play a major role in both of these areas.

Annual excise revenues from cigarettes globally could increase by 47 per cent, or $140bn, if all countries raised excise taxes by about $0.80 per pack, a recent WHO report stated.

Additionally, this tax increase would raise cigarette retail prices on average by 42 per cent, leading to a 9 per cent decline in smoking rates and up to 66 million fewer adult smokers.

“Raising tobacco taxes is the most effective and cost-effective strategy for reducing tobacco use,” the WHO stated.

The GCC, which is struggling with both lowered government revenues due to the drop in oil prices and high smoking prevalence rates, is expected to see a positive impact from the new tax, according to experts.