Israel's Finance Minister Signs Order Raising Tax on Rolled Tobacco

Moshe Kahlon reluctantly signs off on measure after High Court orders parity with cigarette tax ■ Shelf price of a a 50-gram package of rolled tobacco to increase from 85.41 shekels to 122.85

Rolled tobacco
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Israeli taxes on rolled tobacco and cigarettes were equalized as of Thursday after Finance Minister Moshe Kahlon signed an order he long resisted as part of his anti-tax policy.

The parity order was issued two weeks after the High Court of Justice mandated it, saying that both kinds of tobacco presented equal health problems and should thus receive the same tax treatment.

The tax on a 50-gram package of rolled tobacco goes up to 55 shekels ($15.20) from 23 shekels previously. Taking into account the value-added tax, that means the shelf price will increase to 122.85 shekels from 85.41 as of Thursday.

The gap in tobacco taxes, and as a result retail prices, emerged in 2013 after the government raised taxes on cigarette prices. The result was a huge increase in sales of rolled tobacco as smokers, especially young ones, opted for the lower-price alterative. The market share for rolled tobacco soared from just 1.1% of all tobacco sales in 2012 to 17.8% today.

Israeli Minister of Finance Moshe Kahlon and leader of the Israeli "Kulanu" party gives a press conference in the Israeli city of Tel Aviv on February 13, 2019.
AFP

Smoking experts say that taxes are a key way to deter smokers and that is why Israel imposes such a high rate on tobacco. But Kahlon, who led his Kulanu Party to a strong showing in the 2015 elections on a consumer-friendly policy, has been cutting income tax and other taxes and didn’t want to be associated with any kind of rise, even for tobacco.

The consumer advocacy group Smoke Free Israel petitioned the High Court last June and was later joined by the Israel Cancer Society and Israel Medical Association with amicus briefs. Although Kahlon continued to oppose the tax hike, he failed to convince government attorneys, who told the court last month they wouldn’t oppose the petition.

Judge Dafna Barak-Erez said in her ruling that Kahlon’s refusal to sign the order because it contradicted his tax policy didn’t exempt the government from its obligation to impose consistent policies or to take into account the impact it had on the right to health.

The higher tax on rolled tobacco is expected to yield the treasury an extra 400 million to 450 million shekels a year.

In a related development, Kahlon also signed an ordered delaying a hike in the excise tax on coal paid by the Israel Electric Corporation until 2021. The increase had been slated to go into effect March 15. By putting it off Kahlon is enabling state-owned IEC to avoid a politically unpopular increase in electricity rates.

Kahlon took a lot of flak when news emerged in December that electricity prices would be rising 7.3%. Delaying the higher excise tax on coal enabled Kahlon to limit the rise to just 2.9%, which took effect January 1.