There was joy for smokers and distress for the treasury yesterday after the Knesset refused to lower the ceiling on duty-free cigarettes or to raise taxes on tobacco.

The decision, taken at a stormy session of the Knesset Economic Affairs Committee and in defiance of the Finance Ministry's wishes, will cost the government some NIS 190 million in lost tax revenue this year.

Under a plan approved by Finance Minster Yuval Steinitz several months ago, the exemption on cigarettes bought at duty-free stories would be limited to a maximum of 200 cigarettes, the equivalent of a pack, from the present 400. The tax on tobacco imports was slated to be gradually increased from NIS 50 a kilogram today to NIS 280 by 2015.

In fact, the higher tax on tobacco was imposed in February, so unless the committee approves the order by May 15, the levy will actually go down.

Lawmakers called on the treasury to hold discussions on a revised proposal with the Israel Airports Authority, duty-free franchisee James Richardson and tobacco importers, all of whom claimed the original proposal would do them harm. But sources in the committee expressed doubt that lawmakers would approve either the lower ceiling on duty-free cigarettes or the higher tobacco tax before the general election, which is now expected to be called as early as August.

Lobbying by the Airports Authority also likely played a role, sources said.

Five lobbyists were in attendance at yesterday's meeting, representing James Richardson, which has the duty-free franchise at Ben-Gurion International Airport; tobacco manufacturer Dubek; the tobacco division of the Israeli Chambers of Commerce; and the American tobacco company Philip Morris.

The only committee member to side with the treasury was its chairman, Moshe Gafni (United Torah Judaism ).

Coalition chairman Zeev Elkin (Likud ) made an appearance at the session to express opposition, even though he does not sit on the panel and is supposed to support the government on Knesset votes.