Every year Lebanon loses the population of a small village, about 3,500 people, not to emigration but to needless death from smoking-related diseases.
For all the furor around Lebanon’s current smoking ban, little is said about the simple policy instrument that has proven the most effective in reducing tobacco consumption and raising government revenue around the world: higher tobacco taxes. When you ask a Lebanese politician why our state does not apply this instrument and each year fails to raise excise taxes on tobacco, the immutable answer is smuggling. At first it seems a logical retort, and there is an historical precedence to back it up.
Lebanon once increased tobacco taxes as a proportion to pack price from the current 51 percent to 113 percent in 1999. Back then, the revenues of the Regie Libanaise du Tabac et Tombacs (Regie), Lebanon’s tobacco monopoly under the Ministry of Finance, fell by around half. The tax increase was rescinded when an “unstoppable” increase in smuggling jeopardized the Regie’s ability to pay subsidies to farmers who held onto land that was on the frontline of the war with Israel.
The “patriotic” argument for tobacco subsidies appears slim if one notes a recent Gallup survey whereby 88 percent of Lebanese would support dropping these subsidies in favor of a more equitable social safety net. More importantly, it is questionable if the Regie, which maintains a barter agreement with “Big Tobacco”, actually saw revenue drop because of smuggling when taxes rose.
What likely happened was that Big Tobacco intentionally lowered imports in response to the hike in tobacco taxes. Subsequently, the Regie, being close to tobacco firms, blamed smuggling as the sole cause of its troubles and succeeded in lobbying the government to overturn the tax rise. What’s more, Big Tobacco has a long and documented history of battling tobacco taxes in Lebanon as well as encouraging illicit trade.
It is telling that tobacco taxes have not risen since 1999 despite all the evidence that it would benefit everyone but those with vested interests. According to a recent study from the American University of Beirut, raising the average price of a packet of imported cigarettes from LL2,500 ($1.67) to LL8,250 ($5.47) would bring down consumption by 22 percent, even if smuggling increased by 200 percent. Indeed, the government as a whole would have gained 55 percent more revenue — $188 million for 2012 sales — from tobacco excise taxes by raising average prices to just LL4,750 ($3.21). This drop in consumption would result in 770 fewer Lebanese citizens dying from smoking-related diseases per year.
Given that cancer treatment makes up anywhere from 60 to 80 percent of the Ministry of Health’s annual spending, the effect it would have on its ability to address other public health issues cannot be understated.
The notion that nothing can be done about smuggling should also be stubbed out. Part of the tobacco tax revenue stream could easily be allocated to combat smuggling through better information and identification systems of tobacco products — unique barcodes, invisible ink, radio frequency identification and high-tech tax stamps.
In fact, smuggling has much more to do with corruption — whether it be petty bribes at borders or political involvement in illicit trade — than with prices. Egypt and Morocco are countries that faced similar problems of smuggling and corruption and also have tobacco monopolies. They increased taxation on tobacco with good success, witnessing substantial falls in consumption, rises in government revenue and positive public health outcomes.
In addition to the number of lives saved and money to be made, there is an added urgency to introduce higher tobacco taxes because the relevance of the indoor smoking ban introduced last year is waning. According to the Tobacco Free Initiative, a civil society organization, less than 50 percent of bars and restaurants were applying the smoking ban last month, down from 90 percent at the end of last year. Consumption is also on the rise, as state revenue from tobacco excise taxes in 2012 increased by a whopping 26 percent year-on-year from higher imports.
But, just like a cancer, Big Tobacco’s unfaithful arguments against tobacco smuggling still permeate the Lebanese body politic. Unless we start to treat it now, that cancer will eventually kill any policy reform, and many more Lebanese.
First published in Executive’s June 2013 print edition