New taxes have Egyptian smokers fuming

As part of a new VAT bill aimed at reforming the country’s fiscal policy, the Egyptian government hikes up taxes on cigarettes and tobacco for the third year in a row, raising concern among smokers of limited income who now must choose between paying more or quitting.

al-monitor Young people smoke water pipes (shisha) in a coffee shop in old Cairo, Aug. 20, 2010.  Photo by REUTERS/Asmaa Waguih.

Topics covered

taxes, suez canal, sales tax, egyptian parliament, cigarettes, abdel fattah al-sisi

Aug 1, 2016

After years of work, the Egyptian Ministry of Finance has finally announced completion of the value-added tax (VAT) bill. It has been submitted to parliament and is awaiting approval. Once ratified, the new legislation will replace the General Sales Tax Law in force since 1991.

The Cabinet’s keenness to expedite the implementation of the VAT bill for the most part is an attempt to boost state revenues in order to face imminent economic crises, mainly budget deficits. The bill also is driven by the need to reform fiscal policy.

The submission of the bill to parliament for discussion and ratification provoked immediate controversy among lawmakers, since the bill, if passed, would impose more financial burdens on Egyptians and end consumers of goods and services. For instance, the prices of tobacco products would face a 50% hike under the bill.

In recent years, the government has been raising taxes on tobacco products as part of an anti-smoking campaign under the slogan “Those who oppose should quit.”

On July 6, 2014, President Abdel-Fattah al-Sisi issued a presidential decree amending the General Sales Tax Law. The amendments included price hikes on cigarettes ranging from 1.75 to 2.75 Egyptian pounds ($0.20-0.30) per pack.

Also, on Feb. 22, 2015, another presidential decree hiked taxes on local and imported cigarettes 50%, in addition to imposing an extra 2.25 pounds on the price of each pack sold to consumers at 10 pounds or less. As a result, smokers with limited income are facing an increase of over 70%.

According to the Central Agency for Public Mobilization and Statistics, 19.6% of Egyptians over the age of 15 smoke, and 60% of smokers between the ages of 15 and 24 smoke on a daily basis.

Ibrahim Imbabi, the head of the Cigarettes and Tobacco Division at the Chamber of Food Industries, told Al-Monitor, “Our division submitted a proposal to parliament requesting amendment of some of the articles of the VAT bill so that the cigarette price increase only targets the rich, thus exempting the poor who consume cigarettes below the price of 10 Egyptian pounds.”

“The latest price hike imposed an extra 50% [of the consumer prices] as a fixed tax on cigarettes, as well as a variable tax of 2.25 pounds on cigarettes priced at over 10 pounds. The same fixed tax rate [of 50%] is imposed on imported cigarettes with an additional 4.25 pounds in variable tax. Therefore, smokers are subject to growing burdens, and the government should take that into consideration,” Imbabi said.

He concluded, “In 2015-2016, Egypt made 43 billion Egyptian pounds in cigarette revenues. The government is seeking to hike this amount through the new legislation. Certainly, this will lead to a great wave of inflation in cigarette prices.”

In a telephone interview with the TV program “Yom bi Yom” (Day by Day), which is hosted by Riham al-Suhaili, Lt. Gen. Mohab Mamish — the head of the Suez Canal Commission — said that in 2015 the Suez Canal’s revenue was the highest in history at nearly 40 billion Egyptian pounds, an increase of 1.4 billion from the previous year. This, he noted, shows that the Egyptian government makes more money in cigarette taxes than from ships crossing the Suez Canal.

During the July 19 episode of his show, which airs on Annahar TV channel, TV host Mohammad Mustapha Shardi harshly criticized Finance Minister Amr al-Garhi for the staggering price increase of cigarettes, saying, “We bring in 43 billion Egyptian pounds for the government annually, which means that smokers alone account for more revenues than the Suez Canal. However, the government does not take that into consideration and — for the third [year] in a row — seeks to hike the taxes on cigarettes instead of [saluting us].”

In a bid to reassure the people, head of the Egyptian Public Taxes Authority Abdel Moneim Matar said July 23 that the VAT bill is not the first of its kind in Egypt, as the General Sales Tax Law has been in force since 1991. Matar stressed that the new legislation aims to do away with the problems arising from the application of the General Sales Tax Law, arguing that rates will be set according to tax brackets without prejudice to the citizenry as a whole.

Parliament member Medhat El-Sharif, the undersecretary of the parliamentary economic committee, told Al-Monitor, “Company and sector representatives, including those of the Cigarettes and Tobacco Division at the [Chamber of Food Industries], have presented us with suggestions regarding the bill and the new taxes to be imposed on cigarettes and tobacco after the law is ratified, and we shall look into them.”

He added, “We will reconvene [Aug. 2] to respond to the suggestions, whether by enforcement or acceptance. Our main concern is to put an end to the critical economic situation facing the government.”

He noted that officials from the Egyptian tobacco industry have been urging parliament members to raise taxes on cigarettes and all tobacco products, “because they are well aware of the importance of this tax for Egypt, especially given the urgent need for boosting revenues to prevent a potential collapse of the economy.”

“No patriot would oppose these tax hikes knowing that they will eventually benefit the country,” he said.

Sharif added, “I believe that the main concern for Egyptians of limited income is the imposition of additional taxes on cigarettes priced below 10 Egyptian pounds, which they can only afford given their income. We will certainly take that into account. But as for imported cigarettes, we have to raise their taxes at any expense.”

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