Excise tax drives smokers towards cheaper brands
Higher duties are changing consumer habits in the UAE, as authorities vow to crack down on black market cigarettes
Smokers are buying cheaper cigarette brands since the 100 per cent tax came into force in October, the region’s tobacco industry says.
And one of the biggest tobacco companies claims the “sin tax” is failing to significantly reduce smoking in the GCC.
Premium brands such as Marlboro rose sharply from about Dh10 a packet to Dh20 overnight. But with no minimum prices, some cheap brands still sell for as little as Dh3 today.
Philip Morris International owns six of the world’s most popular brands, including Marlboro.
“It is still too soon to tell how many of consumers have decided to quit smoking,” said Tarkan Demirbas, regional vice president for Philip Morris Management Services in Dubai.
“Certainly because of the tax, we have witnessed a shift in consumer behaviour towards buying cheaper brands. It was not surprising for us that a 100 per cent excise-driven price increase has increased the market share of cheaper brands.
“This might suggest the goal of significantly reduce smoking incidence has not been achieved, since consumers are seeking cheaper alternatives, sometimes even illicit cigarettes.”
A fixed tax rate applied to all brands of cigarettes is proving in many countries to achieve revenue and government health objectives.
The World Health Organisation says tax should be at least 70 per cent of the retail price of cigarettes to price more smokers out of the market and encourage them to quit.
A recent study of 84 countries conducted by Interpol said 11.6 per cent of cigarette consumption was illicit trade, equating to 657 billion cigarettes a year and costing governments about $50 billion, or Dh183bn, of tax revenue a year.
Ikenna Pius, 30, a security guard from Nigeria working in Dubailand, said he had cut back on his cigarette smoking, rather than opt for cheaper brands.
“I’ve been smoking for seven years, mainly menthol cigarettes,” Mr Pius said. “I buy a packet of 20 and that lasts me about two days at the moment.
“Before the tax I was getting through two packets a day, so I’ve had to cut back and that’s mainly because of the cost. Dunhill is my preferred brand and they’re cheaper back home, so I stock up when I’m there and bring them back with me.
“I’ve tried to quit and have gone six months without smoking, but my father and brother smoke too, so it is difficult when I’m around them. I’ve tried e-cigarettes but they’re not the same.”
Bikas, 25, a Dubai groundsman from Nepal, said the price did not deter him from smoking.
“I only smoke one or two cigarettes a day anyway,” Bikas said. “It’s an addiction, so my friends will always find cigarettes from somewhere, and will just choose cheaper brands if the price keeps going up.”
British expatriate David, 38, who manages teams of workers on a production line in Dubai, said his staff continued to smoke heavily during their breaks, despite the recent tobacco tax.
“Our factory guys smoke a scary amount,” David said. “The tax hasn’t changed their consumption levels, but they do seem to be smoking the cheaper brands now, with no filters.”
Smoke-free tobacco products are yet to be approved in the UAE, although e-cigarettes are widely used with liquid topups bought overseas or from black market dealers.
Because many alternatives to conventional cigarettes are not available to UAE consumers, it is difficult to assess their popularity.
But Philip Morris claims almost 5 million adult smokers have quit cigarettes globally by switching to electric-powered heating devices that burn tobacco without the same carcinogens.
“We are committed to transforming our company and our ambition is to one day offer smoke-free alternatives to all current smokers, including those here in the GCC,” Mr Demirbas said.
“However, as is the nature of any consumer product launch, there are certain commercial and regulatory requirements that must be met before we can bring a new product into a market.”
The company and Ras Al Khaimah Customs Department have signed an agreement to take a firm stance against the illicit trade of tobacco products.
The department will inspect seized products carrying the Philip Morris trademark for authenticity and assess the effect bootleg tobacco is having on the community.
In the UAE, it is estimated that illicit trade in tobacco products accounts for $1 million of tax revenue a year.
“As a Customs authority we sit on the front lines of this ongoing fight,” said Dr Mohammed Al Mehrezi, director general of the RAK agency.
“Illicit trade is a crime. It gives rise to even more unscrupulous acts and is a scourge on our nation.”
It is too soon to tell how many consumers have decided to quit. Because of the tax, there is a shift towards cheaper brands TARKAN DEMIRBAS Philip Morris regional vice president