Smoking Rates in Israel Rise for First Time in Five Years, Prompted by Perverse Tax Policy

Imports of loose tobacco, which are taxed at a much lower rate than cigarettes, rose last year as Israelis increasingly opt to roll their own.

Loose tobacco on sale in Israel
Loose tobacco on sale in Israel Daniel Tchetchik

Smoking rates in Israel rose last year, for the first time in five years, in a trend that anti-smoking advocates blame on a tax policy that makes rolling tobacco much cheaper than commercial cigarettes.

Figures from the Israeli Council for Smoking Prevention based on customs data showed that cigarette imports fell slightly last year, to 310 million packs, from 313 million packs in 2015 and from 418 million packs in 2011. But imports of loose tobacco for rolling jumped by 21% in 2016 from the previous year, to 696 tons, the equivalent of 49.6 million cigarette packs — nearly 20 times the amount of loose tobacco imported into Israel in 2011.

That brought the combined total of imported cigarettes and rolling tobacco last year to the equivalent of 359.6 million packs of cigarettes, an increase of 1.5% from 2015.

The 2016 figure for imports was lower than 2014’s 374 million packs, but last year’s increase may be indicative of future trends: The use of rolling tobacco in Israel only began to take off in 2013 when imports soared to the equivalent of 15.5 million packs, from the equivalent of 4.3 million packs in the previous year.

Experts attribute the surge in sales of loose tobacco to a sharp rise in cigarette taxes — most recently in 2013, when the tax on a pack of cigarettes rose to 3 shekels (82 cents), from 2.50 shekels. That brought the price of the cheapest cigarettes to 20 shekels a pack and the most expensive to 30 shekels. Today the cheapest pack is 22 shekels, while the priciest exceeds 35 shekels.

Taxes on rolling tobacco also rose, but the rates is far lower than for cigarettes. The 2013-14 budget contained a provision for a steep, 80% increase in the tax on rolling tobacco, to 800 shekels a kilogram, but the finance minister never implemented the hike.

Importers and Israel’s sole cigarette manufacturer, Dubek, raise the retail price for cigarettes by a shekel or two each time the tax is increased — most recently at the beginning of 2017.

Some cigarette companies sell rolling-tobacco versions of their popular brands, marketing them as a cheaper alternative.

A single self-rolled cigarette made from loose Marlboro tobacco — the best-selling brand in Israel — and containing the same amount of tobacco as a Marlboro cigarette, is nearly half the price as the packaged variety, at one shekel compared to 1.75 shekels.

The Finance Ministry has shown a strong reluctance to raise taxes on rolling tobacco, apparently not to sully the reputation of Finance Minister Moshe Kahlon as a tax cutter, and the Health Ministry has done nothing to push the matter.

Responding to a recent appeal by Knesset member Yehuda Glick (Likud), Deputy Finance Minister Yitzhak Cohen said the treasury planned to raise the tax on loose tobacco by 75%, to at least 800 shekels per kilogram. But he didn’t say when this will happen, and in a written response the Finance Ministry said it “has no intention of raising taxes in any area. The ministry champions the reduction of the tax burden and the increase of disposable income to the greatest extent possible.”

The relatively low tax on rolling tobacco and the shift of Israeli smokers to self-rolled cigarettes means the treasury is losing a lot of tax revenue. A Health Ministry report said the lost revenues amounted to 130 million shekels in 2013 alone, rising to 300 million shekels in 2015. Although these are no 2016 figures, the market trends point to even bigger losses.

Elad Sheffer, from the nonprofit organization Avir Naki (“clean air”), said the policy achieves none of the government’s policy objectives.

“There is no case in terms of health or economics, because cheaper cigarettes aren’t any less dangerous than expensive ones,” he said in a 2015 policy statement.