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Tobacco Tax Rise to Increase Government Revenues by 52 pct

A simulation conducted by the AUB Tobacco Control Research Group estimated that raising taxes on domestic and imported tobacco would increase government revenues by 52% and help reduce consumption substantially, as reported by Lebanon This Week, Byblos Bank economic publication.

 

 

It indicated that total spending on the consumption of imported cigarettes, local cigarettes and water-pipe tobacco totaled $553m in 2010 and included $512m spent on 307 million packs of imported cigarettes. It added that the Lebanese government currently derives around $230m per year in tobacco tax revenues, excluding profits accrued by the national public tobacco production and trade monopoly (Regie).

 

 

It noted that the receipts are affected by cross-border smuggling, which is estimated at 15% of revenues. It said that government revenues from tobacco taxation come mainly from ad-valorem excise, cus- toms, and value-added taxes.  Further, taxes currently constitute 30% to 50% of the retail price in Lebanon, which is much lower than the 70% to 80% share in upper middle income countries (UMICs).

 

It noted that there is substantial room for increasing the price of tobacco products, given that the average price of an imported pack of cigarettes costs $1.6 in Lebanon compared to $2.5 per pack in UMICs and $5 per pack in high income countries.

 

The simulation showed that raising tobacco taxation by 140% would generate $127m in additional public revenues, which would con- stitute an increase of 52% from current receipts. The results also show that for every 10% increase in imported cigarette prices, the quantity consumed would drop by 2.2%. Further, in line with international findings, the study revealed that raising tobacco taxes would lower local cigarette consumption by 92%, reduce imported cigarette consumption by 7%, and diminish water-pipe tobacco consumption by 26%.

 

It noted that the 52% rise in revenues would take place even under an extreme scenario of a tripling in cross-border smug- gling activity.

 

 

It noted that the tax hikes would include raising ad-valorem excise tax by 50%, as well as enacting a new per pack excise tax that consists of LBP250 per pack on local cigarettes, LBP1,500 per pack on imported cigarettes, and LBP500 per pack on water-pipe tobacco packs. Under this scenario, prices of imported cigarettes would increase from an average LBP2,500 per pack to LBP4,750 per pack, which would align them with international prices; while tax share would increase from the current 50% to 73% of retail prices for imported cigarettes.

 

 

The study concluded that higher tobacco taxes said that adopting these measures would be in line with Lebanon's International commitment to the Framework Convention on Tobacco Control.

 

Photo Fried Dough's photostream

 

 

 

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