International country evidence shows that large tax increases are likely to lead to the emergence or growth of illicit trade. Sarah Dea / The National
International country evidence shows that large tax increases are likely to lead to the emergence or growth of illicit trade. Sarah Dea / The National

Taxing question of curbs on tobacco smuggling



GCC health ministers last month endorsed the call for a 100 per cent increase in customs duties on tobacco products.

There are two important issues related to imposing higher taxes on tobacco. The first is the need to avoid sudden, large tax rises that would lead to an increase in illicit trade. The other is that we must not let that illegal trade provide finance to organised crime groups and terrorist organisations.

The vast scale of the illicit trade network is evident in the fact that trade in illicit, and untaxed, tobacco recently became the fourth-largest global tobacco business by volume, just behind British American Tobacco, Philip Morris International and Japan Tobacco International.

According to Euromonitor, illicit trade in cigarettes is the biggest illegal trade in a legal product in terms of value, and second only to illegal drugs in terms of revenue generated by smugglers.

In the Middle East, Iraq, Jordan, Libya and Tunisia were among the top 10 countries for tobacco tax evasion in 2012.

The GCC countries currently have relatively low illicit penetration rates, but are wedged between the tobacco industry’s established smuggling centres in the Middle East/ North Africa/the former Soviet Union, and the burgeoning tobacco markets in the Indian subcontinent.

The GCC countries are surrounded by states with illicit penetration rates in excess of 20 per cent, with countries experiencing war and turmoil – Libya, Syria, Iraq, Somalia, Sudan and Yemen – having illicit penetration rates of 30 per cent and above. With deteriorating security across the region, we can expect growing illicit trade and higher penetration rates.

Tariff and tax-induced price differentials, along with the lack of secure borders within the Middle East, are a major driver of illicit trade. A sudden 100 per cent increase in tobacco taxes across the GCC, as is being currently envisaged, would widen the price gap compared to lower-priced nations such as Iraq, Libya and Yemen and would drive highly lucrative illicit trade across the borders.

There is massive variation in cigarette prices per container – a standard 40-foot container can carry about 10 million cigarettes – across the region. This varies from a low of US$700,000+ in Iran to a high in excess of US$1.5million in Egypt, with the GCC nations ranging towards the higher end of the spectrum.

An increase in ad-valorem taxes (levies made in proportion to estimated value of the goods concerned) would lead to a massive spread in cigarette prices – more than US$1m per container between the lowest and highest — across the region. Such a large price differential is likely to ignite a surge in illicit trade and help finance organised crime and terrorist groups.

International country evidence shows that large tax increases are likely to lead to the emergence or growth of illicit trade and, as a result, typically do not result in achieving the objectives of generating higher revenue and curtailing consumption.

What can the GCC countries do to increase tobacco taxation to raise revenue and address health concerns, while also avoiding encouraging illicit trade in tobacco and the threat of contributing to the financing of terrorism? We propose a multi-pronged approach including legal and regulatory measures in addition to raising taxes and building tax capacity.

1 The GCC countries should become members of the Protocol to Eliminate Illicit Trade in Tobacco Products (ITP).

While the GCC and the majority of Arab countries have signed up to the WHO Framework Convention on Tobacco Control, only a handful of countries – notably Iran, Kuwait, Qatar, Syria, Tunisia, Turkey and Yemen – have signed on to the Protocol to Eliminate Illicit Trade in Tobacco Products.

2 The GCC should develop common standards to comply with the ITP. GCC states should develop and implement a common GCC tracking and tracing solution to ensure the sharing of information.

3 GCC policy harmonisation and coordination to introduce domestic excise taxes. Multilateral and bilateral trade agreements constrain the GCC countries from raising the common external tariff on cigarettes and other tobacco products, thereby restricting the ability of the GCC to raise prices.

The alternative is to introduce a specific nominal domestic excise duty in each GCC member state consisting of a fixed amount per 1,000 cigarettes or equivalent units of OTP.

4 Gradual implementation of excise tax introduction and tax increases. For example, a 100 per cent tax increase could be phased in over a five-year period that would allow the authorities to assess success in implementation of the policy change, while building the necessary effective administration and enforcement.

5 Invest in the build-up of taxation capacity and administration. Implementing new domestic excise taxes and eventually VAT will require tax administration agencies and trained personnel. Effective enforcement requires skilled resources and tools, with officials skilled in audit and investigative techniques, able to use IT tools, implement track-and-trace systems, analyse data sources and the ability to analyse and assess tax declarations.

6 Use modern technologies for tax administration, including the introduction of digital fiscal markers for tobacco and other products based on digital open standards.

7 Develop Public-Private-Partnerships (PPP) and a GCC anti-fraud agency. Leading tobacco manufacturers and the GCC countries could cooperate in the establishment of a GCC anti-fraud agency (similar to the EU's anti-fraud agency (Olaf)) to combat illicit tobacco trade.

Nasser Saidi, president of Nasser Saidi & Associates, was formerly chief economist of the Dubai International Financial Centre, and Lebanon’s minister of economy and trade and minister of industry.

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SPECS
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About Krews

Founder: Ahmed Al Qubaisi

Based: Abu Dhabi

Founded: January 2019

Number of employees: 10

Sector: Technology/Social media 

Funding to date: Estimated $300,000 from Hub71 in-kind support

 

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Michael Owen 40
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Name: Hassan Mohsen Elhais

Position: legal consultant with Al Rowaad Advocates and Legal Consultants.

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The UN-brokered ceasefire deal for Hodeidah will be implemented in two stages, with the first to be completed before the New Year begins, according to the Arab Coalition supporting the Yemeni government.

By midnight on December 31, the Houthi rebels will have to withdraw from the ports of Hodeidah, Ras Issa and Al Saqef, coalition officials told The National. 

The second stage will be the complete withdrawal of all pro-government forces and rebels from Hodeidah city, to be completed by midnight on January 7.

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Director: Joyce Bernal

Starring: Sarah Geronimo, James Reid, Xian Lim, Nova Villa

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Name: Kumulus Water
 
Started: 2021
 
Founders: Iheb Triki and Mohamed Ali Abid
 
Based: Tunisia 
 
Sector: Water technology 
 
Number of staff: 22 
 
Investment raised: $4 million 
The specs: Hyundai Ionic Hybrid

Price, base: Dh117,000 (estimate)

Engine: 1.6L four-cylinder, with 1.56kWh battery

Transmission: Six-speed automatic

Power: 105hp (engine), plus 43.5hp (battery)

Torque: 147Nm (engine), plus 170Nm (battery)

Fuel economy, combined: 3.4L / 100km

WRESTLING HIGHLIGHTS
TCL INFO

Teams:
Punjabi Legends 
Owners: Inzamam-ul-Haq and Intizar-ul-Haq; Key player: Misbah-ul-Haq
Pakhtoons Owners: Habib Khan and Tajuddin Khan; Key player: Shahid Afridi
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Bangla Tigers Owners: Shirajuddin Alam, Yasin Choudhary, Neelesh Bhatnager, Anis and Rizwan Sajan; Key player: TBC
Colombo Lions Owners: Sri Lanka Cricket; Key player: TBC
Kerala Kings Owners: Hussain Adam Ali and Shafi Ul Mulk; Key player: Eoin Morgan

Venue Sharjah Cricket Stadium
Format 10 overs per side, matches last for 90 minutes
Timeline October 25: Around 120 players to be entered into a draft, to be held in Dubai; December 21: Matches start; December 24: Finals

The National's picks

4.35pm: Tilal Al Khalediah
5.10pm: Continous
5.45pm: Raging Torrent
6.20pm: West Acre
7pm: Flood Zone
7.40pm: Straight No Chaser
8.15pm: Romantic Warrior
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Our family matters legal consultant

Name: Hassan Mohsen Elhais

Position: legal consultant with Al Rowaad Advocates and Legal Consultants.

Healthy tips to remember

Here, Dr Mohamed El Abiary, paediatric consultant at Al Zahra Hospital Dubai, shares some advice for parents whose children are fasting during the holy month of Ramadan:

Gradual fasting and golden points - For children under the age of 10, follow a step-by-step approach to fasting and don't push them beyond their limits. Start with a few hours fasting a day and increase it to a half fast and full fast when the child is ready. Every individual's ability varies as per the age and personal readiness. You could introduce a points system that awards the child and offers them encouragement when they make progress with the amount of hours they fast

Why fast? - Explain to your child why they are fasting. By shedding light on the importance of abstaining from food and drink, children may feel more encouraged to give it there all during the observance period. It is also a good opportunity to teach children about controlling urges, doing good for others and instilling healthy food habits

Sleep and suhoor - A child needs adequate sleep every night - at least eight hours. Make sure to set a routine early bedtime so he/she has sufficient time to wake up for suhoor, which is an essential meal at the beginning of the day

Good diet - Nutritious food is crucial to ensuring a healthy Ramadan for children. They must refrain from eating too much junk food as well as canned goods and snacks and drinks high in sugar. Foods that are rich in nutrients, vitamins and proteins, like fruits, fresh meats and vegetables, make for a good balanced diet

The specs
Engine: 2.0-litre 4-cyl turbo

Power: 201hp at 5,200rpm

Torque: 320Nm at 1,750-4,000rpm

Transmission: 6-speed auto

Fuel consumption: 8.7L/100km

Price: Dh133,900

On sale: now 

The bio

Studied up to grade 12 in Vatanappally, a village in India’s southern Thrissur district

Was a middle distance state athletics champion in school

Enjoys driving to Fujairah and Ras Al Khaimah with family

His dream is to continue working as a social worker and help people

Has seven diaries in which he has jotted down notes about his work and money he earned

Keeps the diaries in his car to remember his journey in the Emirates

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Engine: 6.75-litre twin-turbocharged V12 petrol engine 

Power: 420kW

Torque: 780Nm

Transmission: 8-speed automatic

Price: From Dh1,350,000

On sale: Available for preorder now

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Rugby World Cup (all times UAE)

Third-place play-off: New Zealand v Wales, Friday, 1pm

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Sand storm

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Dust storm

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1. Ministers should be in the field, instead of always at conferences

2. Foreign diplomacy must be left to the Ministry of Foreign Affairs and International Co-operation

3. Emiratisation is a top priority that will have a renewed push behind it

4. The UAE's economy must continue to thrive and grow

5. Complaints from the public must be addressed, not avoided

6. Have hope for the future, what is yet to come is bigger and better than before

What's in the deal?

Agreement aims to boost trade by £25.5bn a year in the long run, compared with a total of £42.6bn in 2024

India will slash levies on medical devices, machinery, cosmetics, soft drinks and lamb.

India will also cut automotive tariffs to 10% under a quota from over 100% currently.

Indian employees in the UK will receive three years exemption from social security payments

India expects 99% of exports to benefit from zero duty, raising opportunities for textiles, marine products, footwear and jewellery

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1. New Zealand Daniel Meech – Fine (name of horse), Richard Gardner – Calisto, Bruce Goodin - Backatorps Danny V, Samantha McIntosh – Check In. Team total First round: 200.22; Second round: 201.75 – Penalties 12 (jump-off 40.16 seconds) Prize €64,000

2. Ireland Cameron Hanley – Aiyetoro, David Simpson – Keoki, Paul Kennedy – Cartown Danger Mouse, Shane Breen – Laith. Team total 200.25/202.84 – P 12 (jump-off 51.79 – P17) Prize €40,000

3. Italy Luca Maria Moneta – Connery, Luca Coata – Crandessa, Simone Coata – Dardonge, Natale Chiaudani – Almero. Team total 130.82/198.-4 – P20. Prize €32,000