x Abu Dhabi, UAESaturday 22 July 2017

UAE considers tobacco tax but sales unlikely to go up in smoke

A proposed nationwide tax on tobacco products will largely fail to reduce sales of cigarettes in supermarkets and corner shops across the Emirates - even if prices are hiked by as much as 30 per cent, retailers believe.

UAE retailers believe a proposed tax on tobacco products will largely fail to reduce sales of cigarettes even if prices are hiked by as much as 30 per cent. Satish Kumar / The National
UAE retailers believe a proposed tax on tobacco products will largely fail to reduce sales of cigarettes even if prices are hiked by as much as 30 per cent. Satish Kumar / The National

A proposed nationwide tax on tobacco products will largely fail to reduce sales of cigarettes across the Emirates - even if prices are hiked by as much as 30 per cent, retailers believe.

Retail executives say only a social change in the consumption of tobacco will affect their topline sales in a significant way.

"If you smoke, you smoke, regardless of the price. The majority of our customer base is not price sensitive," said Fahmi Al Shawa, the managing director for Convenience Arabia, the franchise partner for Circle K convenience stores.

"Compared to international prices, [the Middle East] is one of the lowest-priced regions for cigarettes."

The Ministerial Legislative Committee last week examined imposing a tax on imports of tobacco and its derivatives.

No details were made available on the level of tax, but Dr Wedad Al Maidoor, the head of the country's National Tobacco Control Committee said in July that it hoped to raise prices by 29 per cent.

An increase of that level on the current price of cigarettes would have little affect on demand or sales, according to retailers.

"I do not think it will have an impact, for sure," said Arif Shaikh, the director of Retail Arabia, the master franchisee for Géant Hypermarkets. "Let's say [the increase] was 20 per cent, I would not see an impact on that. If it was 50 per cent then maybe marginally."

A pack of 20 brand-name cigarettes is currently sold in stores around the Emirates for about Dh7 (US$1.90) and a new tax could raise that price to about Dh9. The price of a packet of cigarettes in other parts of the world, such as Europe, is usually higher at about $7.

"I do not think an increase will affect the sales much," said V Nandakumar, the spokesman for Lulu Hypermarket. "There will be a few people that opt for a cheaper brand or some that stop smoking, which is good."

Consumers were also sceptical about whether an increase in cigarette prices would affect consumption.

Nadeem Michael, 41, a smoker who works as a public relations manager for a construction firm, said he smoked 40 cigarettes a day and would not change his habit if prices increased by 30 per cent. "I do not like to smoke," he said. "I need to stop, I want to stop, but I cannot."

Tobacco products currently hold warnings in Arabic and English telling people that smoking is the main cause of cancer and lung, heart and artery disease.

Health authorities have been looking at increasing the cost of cigarettes for about four years, but only an increase of about 50 fils has been made on some brands in that time.

"From our side, to be honest, we are trying to minimise tobacco [as a percentage of sales] anyway," said Mr Al Shawa. "It's not a category we push."

The Government's announcement last week did not provide any details on how a tax would be implemented, but retailers said the costs would ultimately be passed on to the consumer.

Tobacco sales make up about 10 per cent of overall sales at convenience stores across the UAE.

"You see countries around the world trying to do a lot of things to increase consumer awareness," said John Dineen, the president and chief executive of GE Healthcare on the sidelines of Arab Health last week. "Sometimes changes in tax structures - they may create dollars that could be allocated to health care - but I think the most important thing that's done is that you get people thinking about their own health and taking control of their own health."

More than 60 shops, hypermarkets and supermarkets, including Carrefour, Spinneys, Choitrams and Lulu Hypermarket, stopped selling cigarettes for a one day in May last year as part of World No Tobacco Day.

"People are more health-conscious these days, so people are looking at cutting smoking, which we support," said Mr Nandakumar.

rjones@thenational.ae