The financial blows keep coming. A pack of cigarettes or a glass of beer will now cost a couple of shekels more. On Wednesday night, Finance Minister Yuval Steinitz signed orders to raise the cigarette tax from 260.6% to 278.6%. The decision took effect at midnight.
The tax on vendors' existing stocks of cigarettes will be increased by 10% to prevent people from taking advantage of the new regulation, especially after rumors began circulating that sellers intended to import large quantities before the new tax took effect. Moreover, the minimum progressive tax on a pack of cigarettes has been set at NIS 12 (roughly $3). These steps are expected to increase the price of a pack by NIS 2.5 -3 (60-75 cents).
Moreover, Steinitz decided to raise the tax on beer from NIS 2.18 (50 cents) to NIS 4.19 ($1). It is difficult to assess to what extent this will affect prices in stores and pubs.
Steinitz and Netanyahu - certainly not populists (Photo: Moshe Milner, GPO)
The tax hike comes as part of a series of decisions by Steinitz and Prime Minister Benjamin Netanyahu intended to combat the NIS 12 billion tax shortfall that has resulted from the economic slowdown and from lower than expected revenue this past year.
In addition to the NIS 1 billion generated by the higher taxes on cigarettes, cigars, and beer, the state expects to bring in another NIS 4 billion from the recent 1% VAT increase.
However, beer prices are not expected to jump immediately. Steinitz has not taxed existing stocks, so the prices will rise only when importers begin bringing new shipments into Israel. Moreover, the demand for beer in Israel more elastic than the demand for cigarettes, and stores and pubs are concerned that raising prices will drive sales down. The pub scene is also very competitive, and publicans are hesitant to jack up prices to customers, preferring to wait until their neighbors are forced to do so, as well.
Ultimately, a tax hike of NIS 2 per liter of beer will force a pub owner who currently sells a half-liter glass for NIS 26 ($6.5) to charge NIS 29.5 ($7.32) to maintain the same profitability. However, this assumes that importers will shoulder the tax hike and only pass on the added tax to customers – an unlikely scenario, as they will also seek to preserve their profit margin.
Taxes on hard liquor will not be raised.