The House of Representatives passed amendments to the value-added tax on cigarettes Sunday, resulting in an increase of at least 12% in the official prices of cigarettes.
The amendments expanded the price ranges of taxed cigarettes by raising the maximum and minimum limits of each segment by 12% annually for five years.
According to the report of the plan and budget committee in the parliament on the draft law, the Cabinet may lower this annual percentage to match the analysis and evaluation of the changes in the actual production cost that affect the selling price of cigarettes to consumers.
The amendments are important for cigarette producers who have faced rising production costs and a soaring USD whose value increased by about 50% since March of last year. The amendments allow them to adjust cigarette prices without moving into higher tax brackets.
The draft law also increased the fixed tax by about EGP 0.50 on the three segments of cigarette prices, making it EGP 4.5 for cigarettes whose prices are less than EGP 31, EGP 7 for cigarettes whose prices range between EGP 31-45, and EGP 7.5 for cigarettes whose prices exceed EGP 45.
The tax on tobacco products also increased by 75%, with a minimum of EGP 60 per pure kilogram, compared to EGP 30 under the current law.
The law raised the tax by 25% on imported and local molasses products, and increased the tax on heated tobacco products to EGP 1,800 per kilogram, compared to EGP 1,400. It also raised the tax on e-liquid per millimeter to EGP 4, compared to EGP 2 under the current law.
Minister of Finance Mohamed Maait stated that the proposed project would have a financial impact on the state’s general budget amounting to EGP 8bn annually, emphasizing the increase in production and ensuring strict control over the markets, which would ensure price stability.
According to the Plan and Budget Committee report, the expected revenue from the tax increase is EGP 8bn.
The market is suffering from a shortage in the supply of cigarettes due to the import crisis. The Eastern Company for tobacco production says that it plans to increase the supply in the coming period after the entry of the UAE “Global Holding” into its ownership structure, which promised to provide financing worth $150m to purchase raw materials.
The shortage in supply led to an increase in unofficial selling prices to consumers over the past months, exceeding the official prices set by more than 100%, which raises questions about the possibility of increasing official prices shortly.
Youssef Al-Banna, a financial analyst at Naeem Securities, said that the current fluctuation in cigarette prices is mainly due to a lack of supply. Additionally, the shortage of raw materials affected the company’s production volume.
Al-Banna told DNE that the Eastern Company may raise cigarette prices in the period after the value-added tax project was approved by the House of Representatives. He added that the company seeks to secure raw materials by arranging the necessary financing.
Sources also told DNE that the company has not yet received the agreed-upon loan of $150m from the new Emirati shareholder, which may change the company’s pricing policy in light of the widening gap between the official price and the black market price.
Ibrahim Embabi, head of the General Tobacco Division at the Federation of Egyptian Industries, said that expanding the three segments was a response to the division’s request after the rise in the dollar exchange rate so that manufacturers would not suffer losses. He explained that the division requested an increase of only EGP 0.5 on the fixed tax for each segment, while the variable tax is applied to the selling price of each company to consumers.
He explained that the increase in the molasses tax aims to protect official factories from random factories that affect the sales of official companies.
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