GCC hike in tobacco prices will see rise in illicit trade, experts warn

A White Paper highlights that introducing tobacco tax in the GCC could lead to an increase in illicit trade and the smuggling of cigarettes.

Gulf Cooperation Council finance ministers are discussing a 100 per cent increase in duty on tobacco products.
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DUBAI // Doubling the tax on cigarettes will lead to a rise in illicit trade and young people falling prey to smuggling gangs, experts have warned.
As GCC finance ministers deliberate on a 100 per cent increase in duty on tobacco products, a report was published today showing the move would cause the growth of an illicit trade police and Customs could not control.
And the paper says there is no evidence that doubling the duty will significantly cut the number of people who smoked.
The World Health Organisation (WHO) has said a 10 per cent price increase in tobacco tax in a high-income country would result in a 4 per cent reduction in smoking levels.
But Maj Khalid Al Hassan, head of the anti-forgery section of the economic crimes division at Dubai Police and one of the publishers of the paper, said the reduction in the GCC would be far lower than 4 per cent.
"The UAE is a country where the majority of the population has a high income so they don't care about a price increase," Maj Al Hassan said.
"The price of cigarettes is not expensive when compared with 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. I don't think tax would be the solution to problem."
It is estimated that doubling the tax would increase the cost of a packet of cigarettes by 50 per cent.
In October last year health authorities and smokers closely watched a GCC finance ministers' meeting in Riyadh, Saudi Arabia, where a regional tobacco tax was debated after calls by healthcare professionals in the GCC and WHO. But no decision was reached.
The GCC first increased its tariff on tobacco imports in 1995 by 100 per cent. In the same year, the council voted to reduce nicotine content in tobacco products, and banned production of them in any GCC state.
In 2001, health ministers asked the council to increase the tariff by another 150 per cent.
The request was rejected and the council agreed to focus on other measures to combat smoking.
In the report released today, experts said a sharp rise in cigarette prices did not have any effect in six countries including Japan, Singapore and Canada.
"You have to consider that a price increase will invite people to trade in counterfeiting," said Omar Obeidat, co-publisher and partner at the Dubai law firm Al Tamimi and Co.
"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."
Maj Al Hassan called for a phased increase on tobacco duty over five years, as was the case with the 1995 GCC decision.
A gradual approach would give Customs more time to put in place technology to help disrupt the flow of illicit cigarettes and provide valuable data to analyse smuggling trends, he said.
"If you raise tax illicit trade will begin and governments must then spend big sums of money to combat that illicit trade," Maj Al Hassan said.
"The UAE would require more resources to handle the knock-on effects at border controls."
The report says illicit trade creates uncontrolled and unaccountable markets, resulting in children being able to obtain tobacco more easily and the livelihoods of tobacco retailers are threatened.
The authors called on authorities to take the lead on educating the public against smoking and asked for more measures to protect brands and local businesses from counterfeiting.