High Tax on Cigarettes Pushing Young Israeli Smokers to Use Loose Tobacco

Health groups want government to hike taxes on rolling tobacco, but state sees that as a drag.

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A man smoking a hand-rolled cigarette in a Tel Aviv bar.
A man smoking a hand-rolled cigarette in a Tel Aviv bar.Credit: Daniel Tchetchik

Hand-rolled cigarettes have grown increasingly popular in recent years, especially among the young. But the story behind their popularity isn’t just a passing fad, but the direct result of a government policy of continuously raising taxes on packaged cigarettes.

A rough calculation of the price of packaged versus hand-rolled smokes by weight shows how big a gap has developed. The same amount of loose tobacco as that used in Marlboros – by far the most popular cigarette brand in Israel – costs some 43% less than buying it in a pack.

With rolling paper costing virtually nothing, it’s no surprise that younger smokers with less disposable income are increasingly opting for hand-rolled smokes.

The gap wasn’t always so wide, though. Over the last few years cigarette taxes have been rising, with the last increase in 2013 boosting the levy to 3 shekels (79 cents) a pack, up from 2.50. That brought the price of the cheapest brand in Israel up to 20 shekels a pack, with the most expensive costing 30 shekels – a price range that has since climbed to 22 to 35 shekels.

Rolling tobacco was also subject to higher taxes, but the rates are far lower than for packaged cigarettes.

Organizations fighting tobacco usage say cigarette taxes shouldn’t be based on their ability to generate revenues, but as part of health policy and a way of deterring smokers.

“A high tax on tobacco is the most effective means of reducing tobacco consumption, especially as a way of preventing young people from becoming smokers to begin with,” said Miri Ziv, director of the Israel Cancer Association.

“It’s been shown that the price of cigarettes for young people is a major factor,” she added. “When they have to choose between ‘burning’ their money on cigarettes or buying tickets for a concert, a new laptop or trendy clothes, they’re less interested in smoking. For those who already smoke, they have more motivation to quit.”

Mark Luria, an activist with the Israel Council for the Prevention of Smoking, cited figures from the World Health Organization showing that every 10% increase in the price of cigarettes leads to a 5% reduction in smoking within one to two years, and another 5% reduction in following years.

“If the treasury equalizes the taxes between rolling tobacco and cigarettes, initially you’ll see an increase in tax collections. But within a few years, collections will start to drop because people will start smoking less,” he said, noting that young people would lead the way.

The problem with the tobacco tax regime hasn’t been lost on treasury officials: The 2013-14 budget contained a provision for a steep 80% increase in the tax on rolling tobacco, to 800 shekels a kilogram. But the finance minister never implemented the hike.

The treasury’s spokesman didn’t provide a response by press time, but Yitzhak Cohen – Finance Minister Moshe Kahlon’s deputy – signaled the reasoning behind the ministry’s hesitation to act.

Reacting to a proposal by MK Yael German (Yesh Atid), Cohen said, “That’s a tax hike and none of us – neither you nor I – want to raise taxes. Period, the public expects us to lower taxes. The purchase tax is already steep, very steep, on all tobacco products.”

The tax policy on cigarettes creates other distortions. Because most of the tax is based on the price of the cigarettes, and a much smaller part on the fixed levy, it means that the tax on cheaper brands, more likely to be smoked by young people, is lower.

Meanwhile, the high tax rate encourages people to use rolling tobacco and for a black market trade in cigarettes. In 2013, the Health Ministry estimated that the tax revenues lost to the state from both factors amounted to 130 million shekels. By 2015, that had risen to 300 million – a lot of that due to the growing use of rolling tobacco.

Elad Sheffer, from the nonprofit group Avir Naki (Clean Air), said the policy achieves none of the government’s policy objectives. “There is no case in terms of health or economics, because cheaper cigarettes aren’t any less dangerous than expensive ones,” he said in a 2015 policy statement.

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