Cigarette companies have demanded there be no increase on the tax rate for cigarettes but instead to expand the three segments from their current rates.
Japan Tobacco International (JTI) produces Winston cigarettes, their director of external relations Khaled Ismail demanded no increase on the tax for cigarette but raise prices of the three existing segments. He proposed expanding the scope of each segment. The differences would be EGP 2.75 on the first, EGP 4.25 on the second, and EGP 5.25 on the third. In his proposal, Ismail suggested expanding the scope of the first segment from EGP 17 to EGP 13, the second segment to EGP 17- 28 rather than the current EGP 13 -23; and raise the prices of the third segment to prices more than EGP 28.
He explained that this will lead to increasing tax revenue on the grounds that the Egyptian Tax Authority collects 50 percent of the selling price on 20 cigarette packs. The Ministry of Finance has a tax collection target of EGP 54.5bn on tobacco and cigarettes for the coming fiscal year budget, up from the current EGP 42.3bn.
Ismail told Daily News Egypt that the biggest part of input production in the industry is imported from abroad, including tobacco, paper, and filters. The prices of these imports have hiked on the back of the float of the Egyptian pound, which has added pressure on producers. He voiced concerns about the increase in the smuggling rates of imported cigarettes in the event of a decision to raise the prices of tax on cigarettes, which will incur losses, while at the same time affecting the public health.
“If the Ministry of Finance insists on increasing the prices of cigarettes, it should take into account the lower social groups so that the rise of prices is gradual by EGP 0.5 for the lowest segment up to EGP 1.5 on the other segments,” he said.
The Ministry of Finance is has considered raising the prices of taxes on cigarettes in the next fiscal year with values ranging from EGP 0.5 to EGP 2, as part of its plans to increase government revenue. Ismail denied current claims about the existence of a trend to equalize the second tranche and the third in the tax burden of the segments in accordance with the principle of tax justice in distribution.
Head of the tobacco division at the Federation of Industries, Ibrahim Imbaby, said recently that the division proposed a suggestion to the Ministry of Finance during the meeting held in the framework of the discussions between the ministry and representatives of the sector that the increases for the first tranche to be at EGP 0.25-0.5; second segment between EGP 1 and EGP 1.25; and the third segment between EGP 1.5 and EGP 1.75. The suggestion includes raising tax on imported shisha tobacco to 175% instead of 150%, whilst keeping the prices of local products unchanged.