Oman imposes hefty hike in tobacco tax

Reports from Oman indicate the government has hiked tobacco taxes up to double the previous amount – after a tax freeze on tobacco products lasting 17 years.
A Sept. 21 press release said some form of a tax increase on tobacco has been in the works for six years, but in November 2015, various Gulf leaders acted decisively to approve the outsized tax on cigarettes and other tobacco products.
“Inflation and prices of all other commodities have gone up several times.” Dr Jawad al Lawati, rapporteur at the National Tobacco Control Committee at the Oman Ministry of Health, said in a press release announcing the government’s move.
Oman is not the only country to levy the increased tax – Bahrain imposed one in January and Saudi Arabia levied a higher tax in March.
What's behind a tax increase this large?
“The claim is they want to decrease smoking.” Ken Smith, associate professor and department chair of economics at Millersville University, told the Gulf News Journal , speaking about the effect of various national tobacco taxes in general. “However, tax increases like this tend not to have much of an effect on consumption.”
Smith said the sellers can simply pass the tax on to buyers, and governments can easily scoop up some money.
“(The taxes on tobacco) tend to generate a fair amount of revenue.” Smith said.
Smith also addressed the shifting of international and domestic taxes, where according to reports on the new tobacco tax, a domestic tax hike could cancel out the phased elimination of import duties on U.S. tobacco products entering Oman. Through a free trade agreement with the United States, Oman plans to phase out these import duties by the beginning of 2018.
With the eradication of import duties and the new tax hike, the effect could be neutral – and, just as importantly, in failing to enact a domestic tax, the government might have seen tobacco prices actually fall.
“They're just replacing one tax with another.” Smith said, explaining that trade agreements to lower duty taxes are commonplace.
“We have lots of free trade agreements (with other countries) for negotiations.” Smith said.
In general, he said, a tax on tobacco products is easier than some other kinds of taxation – it allows governments with the power to levy taxes the ability to raise the effective prices on something quite a bit, without a lot of concerted buyer response.
“You have to think about the product that you’re taxing.” Smith said, pointing out that a large tax on other products could have a very different impact on a national population.
A current resource from the U.S. Office of the United States Trade Representative to Oman does not precisely identify the volume of tobacco products exported from the U.S. to Oman, but cited total exports of agricultural products at $57 million as of 2013, noting that the top two agriculture exports for the year were poultry and vegetable oils.