RIYADH — The dilemma facing GCC finance ministers as they deliberate over a 100% increase in duty on tobacco products is underlined by a White Paper published Wednesday, which spotlights growth in illicit trade, beyond the control of police and customs authorities, as an inevitable consequence of a sharp overnight rise in the cost of cigarettes. Based on a round table discussion examining the impact of a new tobacco tax on smoking, and the effects on trade and social stability, the White Paper finds no evidence that a one-step, 100% overnight increase in duty on tobacco products will significantly affect consumption levels or smoking propensity. It highlights concern that a sharp increase in cigarette prices will fuel the growth of illicit tobacco trade into the GCC countries, undermining tobacco control and leading to young people being targeted by gangs involved in smuggling. Measuring the cost to the economy and society in general from increased trade in counterfeit goods, with the media reporting illegal markets springing up in the region, the White Paper spotlights a need for strong measures to effectively protect legitimate and local businesses. It also points to a need for the GCC authorities to take a lead role in driving education and awareness programs to warn people — especially the young — against the risks of smoking, removing the ‘cool factor' from smoking, and reinforcing tobacco control by putting in place more barriers to smoking in public places to affect the habits of smokers. The round table discussion brought together Maj. Dr Khalid Al Hassan of Dubai Police, Jonathan Davidson, of the British Business Group – Dubai and the Northern Emirates, Omar Obeidat, of a Dubai law firm, and Dr. Bruce Budd, Associate Professor in Saudi Arabia. Journalist and broadcaster Richard Dean, who moderated the discussion, said one of the key questions related to tobacco tax is whether an increase in price has an impact on smoking levels. He cited recent reports from the World Health Organization (WHO), which claim that, in general terms, a ten percent price increase in a high income country will see a four percent reduction in smoking levels. In poorer, economically deprived countries, the same increase would bring a reduction of between four and eight percent. Maj. Al Hassan said the impact in the GCC would be far lower than four percent. He said the UAE is “a country where the majority of the population has a high income, so they don't care about a price increase. The price of cigarettes is not expensive when compared to other areas of the world. A price increase may affect some nationalities with a low income, but for UAE locals and expatriates, they don't care.” Obeidat said: “You have to consider that a price increase will invite people to trade in counterfeiting. If you add on top of that the issue of smuggling, which is a by-product sometimes of tax increases, you're going to have a double impact of counterfeiting increases plus smuggling increases. Smuggling affects the legitimate trade and hits the revenue of the government.” Maj. Al Hassan suggested a better alternative to a one-step 100% increase in tobacco duty was a phased-in increase over five years, as with the 1995 GCC tobacco tax. He said: “I disagree with the sudden rises in taxes. Even when alcohol was banned, it was done in three stages.” — SG
