Israel is set to slash the duty free tobacco allowance for returning nationals in half by April, if government plans for the reduction go forward as expected.

 

Last night the country’s Ministry of Finance confirmed to TRBusiness.com that it was pushing ahead with a 50% reduction in the allowance (which is currently 250 cigarettes or 250g of tobacco products) to 125g or one carton instead of two.

 

Yesterday, the Hebrew daily Ma’ariv reported the news and today the Israel Tax Authority also told The Business that the new rules would be implemented in April assuming that there were no appeals or derailment efforts between now and then.

 

Directives for cutting duty free tobacco allowances have been on the drawing board for over a year now, but it appears that the government – newly elected last week – is now pressing ahead with reforms.

 

An observer familiar with the situation tells TRBusiness: “The government often wants reforms like these but their wider impact means that they don’t always get the green light.”

 

It is possible that the Australian government’s determination to drastically cut its duty free cigarette imports [personal allowances were cut from 250 to just 50 from 1 September 2012, causing a lot of customs delays and passenger anger -Ed] might have emboldened Israel to follow suit.

 

IMPACT HAS BEEN CONSIDERED

The Israel Airport Authority, which operates all airports and land borders, is not currently aware of any impending changes to the allowances. A spokesperson says: “We have not been informed about it, but we know that the government wants to cut the allowance.”

 

The IAA says that the change will have a “big impact” on duty free sales at its airports, the biggest of which is Tel Aviv’s Ben Gurion whose duty free operation, currently run by James Richardson Duty Free (see below), is now being tendered. Total duty free sales at the airport are around $1m every day.

 

“We will be affected by this allowance change because we have a pick-up-on-return system that is popular with travellers,” comments the IAA spokesperson. In any event, the IAA says it has made contingencies in the new seven-year duty free contract for events such as this proposed reduction in tobacco allowances. The contract details can be found here on the IAA’s website.

 

 

REVENUE TO THE EXCHEQUER

According to Israeli press reports, the national Tax Authority claims that the new regime will generate New Israeli Sheqels NIS150m ($40m) a year in revenues, although the Ministry of Finance says it is difficult to estimate a reliable figure. The business paper Globes reported yesterday a Tax Authority official as saying: “There is no reason in the world for Israel to subsidise cigarettes, especially for people able to travel abroad. This is not the social justice that the public wants.”

 

In Australia, the government is spending A$11.7m ($12.2m) over the next 18 months on brochures and advertising about the new measures and is also hiring extra customs staff at its big airports to handle the allowance change which is being strictly enforced.

 

The Australian treasury has described large duty free allowances as “outdated” and a subsidy for the rich. It has estimated it will benefit to the tune of A$600 million over four years though the allowance reduction.