In the latest in a series of fiscal reforms, Egyptian President Abdel Fattah al-Sisi issued a decree dated July 2 that raises sales tax on cigarettes to 50 percent, tax on wine to 150 percent and tax on beer to 200 percent.
Taxes on local and imported beer and wine were previously set at 100 percent. In theory, this means that a can of Stella beer that previously cost LE6 will now cost LE9, with tax doubling from LE3 to LE6. Meanwhile, a bottle of Omar Khayyam wine that previously sold for LE50 would now sell for LE62.50, with taxes accounting for LE37.50 of the price, instead of LE25.
Cigarette pricing is more complicated, since there were already three elements of taxation: a 40 percent excise tax based on the price of cigarettes, as well as a set price of LE1.25 per pack of 20 and a 10 piaster health tax. Under the new system, the excise tax will increase to 50 percent per pack of 20 imported cigarettes. In addition, the set fee will rise to LE1.75 per pack for cigarettes that have a retail price of less than LE9, to LE2.25 for cigarettes costing between LE9 and LE15, and to LE2.75 per pack for cigarettes with a retail price of more than LE15.
In December 2012, former President Mohamed Morsi attempted to pass similar tax increases for tobacco and alcohol, but quickly backed down in the face of public opposition.
Since coming into office, Sisi has implemented a number of economic changes aimed at reducing Egypt’s deficit. He demanded that the state budget be revised to rein in spending, has reduced energy subsidies for industry and consumers, has implemented capital gains tax on the stock market, and signaled that other changes, such as adopting property and value added taxes are forthcoming.
Countries around the world impose so-called “vice” or “sin” taxes on commodities like alcohol and tobacco. These taxes are intended both to reduce consumption and balance the social and public health costs of tobacco and alcohol use.
According to the World Health Organization (WHO), increasing taxes on tobacco products is the cheapest and most effective way to reduce smoking and smoking related illnesses. It estimates that if all countries increased cigarette taxes by 50 percent, there would be 49 million fewer smokers, averting 11 million deaths from smoking.
A 2010 tax increase caused Egyptian cigarette prices to go up by around 44 percent. According to the WHO, this reduced sales by 14 percent within two years, and raised revenue by 151 percent, from LE7 billion to LE17.6 billion.
However, critics of vice taxes claim that such levies are purely revenue-seeking measures, and that the cost is borne primarily by low-income citizens, who are more likely to consume tobacco products.
Opponents also claim that increasing taxes leads to a rise in black market tobacco and alcohol, which can be far more dangerous to consumers than regulated products.