01.25.18

GULF COUNTRIES IMPOSE NEW TAXES ON TOBACCO AND SUGARY DRINKS, DOUBLING PRICES TO A HISTORICAL HIGH

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Hanhsi Indy Liu and Hisham Ali Alsabt are SJD candidates at Georgetown University Law Center. Any questions or comments on this post can be sent to: hl580@georgetown.edu or ha374@georgetown.edu.

Arabian Gulf countries, known for their high oil revenues and low tax rates for decades, have recently been suffering from declining oil revenues. To reduce their reliance on oil revenues, they have begun to follow global trends by implementing first-time excise taxes on tobacco (100%), energy drinks (100%), and carbonated drinks (50%) as well as a 5% value-added tax (VAT) for almost all products and services. In addition to compensating budget deficits, public health purposes have particularly been emphasized on implementing the new excise taxes

On June 10 and October 1, 2017, the Kingdom of Saudi Arabia (KSA) and the United Arab Emirates (UAE) became the first and second state members of the Gulf Cooperation Council (GCC), to impose the excise taxes on tobacco and soft drinks (including both energy drinks and carbonated drinks). The fiscal measures were implemented pursuant to the Common Excise Tax Agreement of the States of the GCC, an agreement adopted by the GCC in Riyadh, Saudi Arabia, on 9 -10 December, 2015. It requests the six GCC member states to adopt and impose excise taxes on goods that are deemed harmful to human health and to the environment (Article 3), while tobacco is the only health harmful product being explicitly singled out in the agreement (Article 6). The taxable product lists, as well as the tax rates, are determined by the Ministerial Committee of the GCC (Article 3).

The new high excise taxes, however, are not the only problems the Gulf nations have created for tobacco and soft drinks lovers. The GCC, in the same Riyadh meeting, also passed another agreement, the Common VAT Agreement of the States of the GCC, to create a new 5% VAT on most goods and services, including tobacco products and soft drinks. After the VAT implementation, there will be another 5% tax on top of the new excise taxes for tobacco and soft drinks products. The KSA and the UAE again become the first to implement the tax starting from January 1, 2018. All four other member states of the GCC, including Bahrain, Oman, Kuwait, and Qatar, expect to impose the VAT one year later in 2019.

This is not the first time that the Gulf countries have levied taxes to raise the price of the products for the sake of both revenue generation and public health promotion. On March 11, 2016, Saudi Arabia has already imposed a 40 % import duty on tobacco products; As a result, the price for a pack of imported Marlboro cigarettes (with 20 cigarettes) increased to 14 Saudi Arabian Riyals (SAR) (approximately equals to USD $3.73) from 10 riyals ($2.67), while the new 100% excise tax plus 5% VAT then almost double the price to approximately 26 riyals ($ 6.93) per pack, according to a local cigarette user in Riyadh.

Tobacco and soft drinks are both popular products in the Arabian Peninsula. In Saudi Arabia, for example, the prevalence of current smoking among persons aged 15 and above is 27.9 (2015: Male. WHO Data); and the county has been listed as the fifth in the world for sugary drinks consumption per capita (behind only Chile, Mexico, the US and Argentina). These consumption patterns, as well as sedentary lifestyle, certainly lead to higher levels of chronic diseases in the country and the region. For example, the high consumption of sugary drinks in Saudi Arabia is likely one of the reasons that a survey conducted jointly by the KSA and the Institute for Health Metrics and Evaluation at the University of Washington found that the country’s prevalence of obesity is around 30% and among the countries with the largest increase in obesity.

The World Health Organization (WHO) has constantly advised that increasing taxes is an effective strategy for increasing prices and reducing the demand for tobacco products and sugary drinks. Article 6 of the Framework Convention on Tobacco Control, an international treaty that all GCC states have signed and ratified, emphasizes that “price and tax measures are an effective and important means of reducing tobacco consumption by various segments of the population, in particular young persons”. However, an abrupt price increase of about 150% within two years in the KSA, especially for an additive product like cigarettes, might not only increase revenues and reduce usage of the product, but also produce negative effects such as smuggling, illicit transactions, and black markets. Regional and international cooperation on striking all forms of illicit trade, manufacturing and counterfeiting will then be necessary to avoid the adverse byproducts.

While further observation and research will be needed to evaluate the public health impact of the new taxes in the Gulf States, price and tax measures have been proved as an effective tool to reduce the demand for tobacco and soft drinks in other jurisdictions. Let us wish Gulf people can reduce consumption of harmful products and move steps forward to “the highest attainable standard of health”!

Posted in Non-communicable diseases, Tobacco, Trade ; Tagged: , , , , .

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