2010-04-12
CAIRO (Reuters) - Egypt's finance minister said on Monday he was ready to consider a new cigarette tax to boost healthcare spending for low income groups, which is being discussed in parliament.

Egypt is overhauling healthcare and insurance to improve services for its 78 million people, of which about 20 percent live on less than $1 a day, according to the United Nations.

"We (the Finance Ministry) haven't discussed it so far," Youssef Boutros-Ghali told Reuters by telephone, adding that he was ready to discuss a cigarette tax if parliament sought it.

He said parliament wanted to add 1 billion Egyptian pounds for low-income groups to spending already earmarked in a draft health insurance law.

One company, Eastern Company, has a monopoly on cigarette production and sales in Egypt.

Investment bank Beltone Financial said in a research note the tax would lead to a rise in prices without necessarily affecting companies' profits, unless the companies raise the cigarette prices by more than the tax.

"The decision would have a negative impact on inflation, however, with tobacco constituting 2.6% of the urban consumer price index, leading to a one-off rise in inflation," the note said. Core inflation was at 7.04 percent in the year to March.

The daily al-Masry al-Youm on Monday cited Health Minister Hatem el-Gabaly as saying the tax proposal would be referred to the Cabinet, which could decide on it within weeks.

The state health insurance authority is also looking to raise student subscriptions in the medical insurance system to 8 pounds from the 4 pounds in the draft bill, the paper said.

"Raising student subscriptions from 4 pounds to 8 pounds will generate annual revenues of 70 million pounds, while taxes on cigarettes will raise around 700 million pounds," al-Masry al-Youm quoted the health minister as saying.

The 20 percent of the population that has no fixed income and another 8 million government employees will be exempt from paying health insurance contributions, Hamdy el-Sayed, head of the parliament's health committee, told Reuters.

"That is why the Finance Ministry has a problem, as it will pay a lot of money to provide them with the service," he said. "And that is why we are suggesting resources to help the government establish the needed funding for the project."

"We are asking the government to force new taxes on cement and cigarettes to be able to fund our project, which is very important to the solidarity of the society," El-Sayed added.

Al-Shorouk newspaper quoted el-Gabaly as saying last week that the government should raise funds for public health expenditures from polluting industries such as tobacco and cement.