Smokers first to feel pinch as tax on tobacco rockets

Finance Minister Lapid signs surprise decree, which is expected to cost smokers an extra NIS 2.5 to NIS 3 per pack

Adiv Sterman is a breaking news editor at The Times of Israel.

Israelis smoking and drinking. (photo credit: Miriam Alster/Flash90)
Israelis smoking and drinking. (photo credit: Miriam Alster/Flash90)

Finance Minister Yair Lapid on Tuesday signed a surprise decree to raise the sales tax on cigarettes, rolling tobacco and cigars, effective at midnight.

The finance minister, under fire for releasing a plan that includes sharp tax hikes and budget cuts, also imposed a 10% tax on cigarettes held in stock by suppliers.

Following Lapid’s order, the price of cigarettes is expected to increase by NIS 2.5 to NIS 3 per pack. The move is expected to raise an additional NIS 800 million a year.

The decree does not require the confirmation of the Knesset or the government and can take effect right away under law. However, Lapid will have two months to get the approval of the Knesset Finance Committee to retroactively okay the order.

On Friday, Lapid said he would raise the deficit ceiling to 4.65% instead of 4.9% — which means that imminent budget cuts of NIS 6.5 billion will take place and taxes will be raised by about NIS 5 billion.

In 2014, the budget deficit ceiling will once again be lowered to 3% of the GDP, its current rate.

Earlier Tuesday, the Finance Ministry finalized a proposal that aims to increase government revenue by raising value-added tax by 1 percent (to 18%), increasing income tax by 1.5%, boosting corporate tax to 26% and imposing a further “sin tax” on alcohol and cigarettes.

The ministry is looking to cut government spending by some NIS 6.5 billion (almost $2 billion) in 2013 and by NIS 18 billion (some $5 billion) in 2014, largely through cuts in defense (NIS 4 billion or $1.12 billion), education (NIS 1.5 billion or $420 million), child benefits (NIS 2 billion or $560 million) and transportation infrastructure projects (NIS 1.2 billion or $336 million).

Lapid had defended the austerity plan as a painful but necessary measure to rein in the deficit and prevent further financial troubles down the road.

Prime Minister Benjamin Netanyahu has not yet made any public reference to Lapid’s new proposal.

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