Huffs in the tobacco market in Egypt

Amira Hisham, Monday 7 Aug 2023

The announcement of an anticipated tax increase on tobacco products has resulted in parallel-market price hikes and financial losses to the state treasury.

Huffs in the tobacco market
Some brands are sold at double their price


Egyptian smokers have been having a hard time finding their favourite brand of cigarettes in the market. The lucky ones, however, can strike gold — pun intended — for almost double the price.

The hottest selling cigarette brand is the local made Cleopatra, which is priced at LE24 but supply disruptions in the market has shot a 20-cigarette pack of Cleopatra up to LE50.

Amid the unprecedented surge in price, Hani Aman, CEO of Eastern Company (ET), the manufacturer of Cleopatra and many other cigarette brands, told Al-Ahram Weekly that the company sells the pack for distributors for LE24 — the end price for consumers.

Meanwhile, a parallel tobacco market has grown. Leading distributors and vendors take to their social media platforms every day to announce the prices of different brands, while some merchants have monopolised cigarette trading in certain areas, such as Bab Al-Bahr, where distributing tobacco brands in Cairo’s downtown area is monopolised.

Some attributed this to the Eastern Company’s (ET) distribution system for cigarettes, as it supplies distribution contractors who, in turn, distribute to wholesalers and retailers in kiosks. “This is a distribution mechanism that is commensurate with our huge distribution ratios,” Aman told the Weekly. “We distribute 3.5 billion cigarettes annually,” Aman said, making cigarettes “the largest commodity distributed in Egypt.” According to Aman, ET has 300 distributors who implement the electronic invoice and sell at the same price listed by the company.

Some observers believe the crisis in the tobacco market began following an announcement of an increase in taxes on tobacco. The Minister of Finance Mohamed Maait had called for an amendment to taxes on tobacco in the 2023-24 budget to increase its tax revenue from LE81 billion to LE87 billion.  

Details of the price rise were agreed but parliament is yet to issue the amendment to increase the tax.

Fakhri Al-Fiqi, head of the House of Representatives’ Planning and Budget Committee, told the Weekly that during the House’s third session — which included 56 plenary sessions and 188 projects submitted by the government and parliament — the House did not discuss any draft laws related to increasing fees on cigarettes, and no related proposals were submitted by the Ministry of Finance.

According to Ibrahim Imbabi, head of the Tobacco Division at the Federation of Egyptian Industries, mechanisms for implementing the increase in tax income on tobacco were finalised following a meeting with Ahmed Kojak, deputy minister of finance, in March 2023.

Imbabi had earlier said the upcoming tax increase is expected to range from LE0.5 to LE2 depending on the tobacco brand.

“The tobacco crisis was brought to the fore due to the greediness of wholesale vendors who were informed of the details of the tax increase and resorted to stockpiling cigarette packs to benefit from the price increase later on,” Imbabi added.

Hani Aman believes that the merchants set the price of cigarettes with the expectation that there will be a devaluation of the pound and accordingly they doubled the listed price for the pack from LE24 to LE48.

The House of Representatives is now in recess until it reconvenes at the end of summer and trouble in the tobacco market will linger until tobacco taxes are ratified. In the meantime, the state treasury is losing time and money.

Imbabi has urged Prime Minister Mustafa Madbouli to call for convening an exceptional meeting of the House of Representative to approve the amendment. In response, MP Makram Radwan said on TV that it is not necessary to convene an emergency parliamentary meeting if Madbouli submits the amendment directly to President Abdel-Fattah Al-Sisi for ratification.

Last year parliament had issued amendments to increase the tax on cigarette brands. Based on these amendments, the Ministry of Finance issued a ministerial decision in August 2022 to increase cigarette pack prices by LE0.5-1 and raise the price ceiling in line with the expected price increases resulting from the tax hike.

The decision included raising the tax to LE1,400 on a pure kg of tobacco and enforcing LE2 of taxes on every millilitre of liquid tobacco used in electronic cigarettes.

In addition, a value-added tax of LE0.4 was imposed on every pack of cigarettes, whether local or imported, in favour of the General Authority for Health Insurance, to be deposited in an account in the authority’s name in the Central Bank of Egypt, as stipulated in the Universal Health Insurance Law.

Section 9 of Article 40 of the law stipulates that a LE0.75 fee shall be imposed on local and imported tobacco products to finance the universal health insurance scheme. The fee shall increase by LE0.25 every three years until it reaches a maximum of LE1.5.

Besides the scarcity caused by the anticipated tax, the cigarette industry is affected by the dollar shortage. “The dollar crunch in Egypt has resulted in a shortage in the raw materials needed for the tobacco industry,” said Imbabi, warning that this may threaten the local cigarette industry in the next 45 days.

Tobacco is imported in Egypt because growing it is forbidden. The state treasury receives 75 per cent of the tax on importing tobacco, he added.

However, Aman said that the reserves of raw materials for the cigarette industry are reassuring, and production is in full swing.

* A version of this article appears in print in the 3 August, 2023 edition of Al-Ahram Weekly

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