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Healthy profits or people?

Small steps so far toward kicking Lebanon

by Zak Brophy

Nicotine is an insidious drug that ensnares people with remarkable effectiveness, and yet despite increased awareness of the perils of tobacco addiction, Lebanon is still hooked. The tobacco industry is sustained through a combination of dogged lobbying from the industry big guns, a pliant government that listens to them and a citizenry that puffs its way through, on average, more than twelve packets of cigarettes per month.

Lebanon may have ratified the United Nations’ Framework Convention on Tobacco Control (FCTC) in 2005, but the all too familiar tradition of putting pen to paper but not policy into practice was adopted. The major tobacco corporations continued to enjoy significant influence within the government and the nation remained virtually devoid of any tobacco control policy. 

In September last year, the prevailing winds started to shift course with the passing of a tobacco control law. Advertising, promotion and sponsorship of tobacco products have been banned and it is now illegal to smoke in public places (although this does not apply to hospitality venues until September 2012).  The jury is still out regarding to what degree the law will be enforced, but its adoption is certainly a positive development. Despite being the most effective tool in the policy maker’s box of tricks to tackle tobacco use, taxes were left on the bylines when lobbying for this most recent law. This was tactful and not neglectful.  

There was strong resistance to the law from the international tobacco corporations and their Lebanese business partners, many of who are snuggly ensconced among the political decision makers.  Introducing a tax hike into the debate would have increased inertia among the nation’s lawmakers and perhaps derailed the campaign. With the tobacco control law now enacted, taxes are back on the table. 

A recent study by a team of economists at the American University of Beirut shows that increasing taxes on tobacco products would lead to a win-win scenario of increased tax revenues and lower smoking rates. Such a fiscal challenge to the tobacco industry will face tougher opposition than the recent law because money matters. The government could keep on enjoying its healthy profits from the tobacco trade in the short term, but over time the goal of these legislative and fiscal measures is to wean Lebanon off its tobacco dependence. It is this that the profiteers within the industry fear. 

The tobacco trade in Lebanon is managed through a government controlled monopoly, the Regie Libanaise du Tabac et Tombacs (Regie), under the auspices of the Ministry of Finance. For the Regie the nation’s penchant for a puff amounts to a healthy little earner and it enjoyed profits of $408 million last year.

The perpetuation of a thriving tobacco trade provides handsome business for a few, with a 2010 economic analysis calculating a net annual benefit of $271 million for the direct stakeholders. However, when the same study incorporated factors such as lost productivity and associated health costs it found that the loss for Lebanese society amounted to an excess of $50 million.

For the folks at the Regie, talk of a tax hike is foolhardy. In 1999 the government increased tobacco taxes from 51 percent to 113 percent and, contrary to the anticipated rise in revenues, they fell sharply. This was not because people stopped smoking but because smuggling from neighboring markets shot up. While smuggling will undoubtedly rise in the face of a tax hike, this need not necessarily stave off the policy: The AUB study factored in a 200 percent increase in smuggling. However, the illegal cross border trade in tobacco products is in many cases only enabled by political complicity and the support of the international tobacco companies. By using funds from the inflated tax revenues to enact the right safeguards and policies the rise in smuggling could be reduced to a manageable level.

When discussing the AUB study on increasing tobacco taxes, Minister of Finance Mohamad Safadi, said, “The health of the Lebanese citizen is the number one priority”, before trailing off along the industry line about the threat of smuggling. However, as long his ministry is in charge of the monopoly that profits so handsomely from this societal addiction, action must follow words if we are to believe the minister is doing anything more than blowing smoke.

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Zak Brophy

Zak Brophy was Executive's Economics and Policy Editor from 2011 until 2013.

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