(MENAFN- Khaleej Times)Â An overnight 'tax shock' on cigarettes may promote illicit tobacco trade in the region, according to a white paper published on Wednesday.
The paper pointed out that the impact of tax in the UAE would only be up to four per cent and "high income people would not care about the increase."
It would in fact undermine tobacco control in the region and lead young people to be targeted by gangs involved in smuggling, it added.
The paper comes ahead of deliberations by GCC finance ministers over a 100 per cent increase in duty on tobacco products. If approved, the taxation on tobacco and its products will stand at 200 per cent across the region, a figure health officials say will deter smokers.
A round table discussion held in Dubai on April 14 examined the impact of a new tobacco tax on smoking and the effects on trade and social stability. Major Dr Khalid Al Hassan, Head of the Anti-Forgery Section of the Economic Crime Department, 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. I don't think tax would be the solution to problem."
The experts gave examples of Japan, Ireland, Sweden, Singapore, Malaysia and Canada where higher tax did not have the desired effect. Omar Obeidat, partner and head of Intellectual Property at Dubai law firm Al Tamimi & Co, said: "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."
It is estimated that approximately 600 billion illegal cigarettes are sold each year worldwide, representing 11 per cent of the global market. Illicit trade also means governments and legitimate businesses lose billions of dollars in revenue each year, while the cost of fighting crime is increasing.
Jonathan Davidson, Chairman of the British Business Group, Dubai and the Northern Emirates, suggested that efforts to counter illicit trade in tobacco products could be helped by the kind of publicity which had deterred people in the UAE from, for example, risking issuing cheques that bounce because of the legal consequences. Major Dr Al Hassan suggested that a better alternative 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."
Dr Bruce Budd, associate professor, College of Business, Al Faisal University, Riyadh, Saudi Arabia, said that if duty on tobacco products was increased by another 100 per cent, the action would need to be supported by education, supervision and deterrent.
He reiterated the need to remove the 'cool factor' which may still be attached to smoking, particularly among the younger generation.
By changing the habits of smokers and implementing greater barriers in public places, the attitudes towards smoking will begin to change, he added.
Dr Wedad Al Maidoor, head of the Tobacco Control Committee at the UAE health ministry, said that tobacco companies are advocating this stance but declined to comment further.
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