Tobacco Taxes and Health Financing in the Eastern Mediterranean Region

The World Health Organization (WHO) Regional Office for the Eastern Mediterranean has established a Commission on Investing in the Health Workforce to increase investment in health workers and address regional shortages. Expanding the workforce and improving its training entail recurring costs that require a stable source of revenue, including from domestic sources.

This blog examines how much additional tobacco tax revenue countries in the region could realistically collect to support Commission’s objectives, and whether soft earmarking could channel some of it to health.

Revenue collection varies widely across the region’s 22 countries and territories (Table 1). Government revenue excluding grants exceeds 33 percent of GDP in Kuwait, Libya, Oman, and Qatar, but is below 7 percent of GDP in Somalia, Sudan, and Yemen. Iran, Pakistan, and Afghanistan collect 10 percent to 13 percent of GDP. In the oil exporters, high ratios reflect oil revenue; elsewhere, the differences largely reflect the capacity to collect taxes. A recent IMF study estimates that Egypt, Jordan, Morocco, and Tunisia collect less in taxes, against an estimated potential of 22.5 percent; for low-income countries in the region, the shortfall is more than 40 percent of what they collect.

Domestic government health spending shows a similar pattern. It exceeds 4 percent of GDP in Libya, Kuwait, Saudi Arabia, Lebanon, and Tunisia; but is about 1 percent or less in Sudan, Yemen, and Pakistan; 0.6 percent in Afghanistan; and 0.15 percent in Somalia. Egypt spends 1.6 percent. Low revenue constrains health budgets, leaving little scope to finance more health workers without a substantial increase in external grants.

Revenue alone does not determine health spending. Qatar collects about a third of GDP in revenue but spends 2.1 percent on health; Tunisia spends 4.1 percent from a revenue base of 26 percent. Budget priorities matter alongside fiscal capacity. This suggests that mobilizing additional revenue, while important, will need to be accompanied by greater budgetary priority for health.

Low tobacco tax revenue across most of the region

Tobacco tax revenue is low across most of the region: 15 of the 20 countries with data collect less than 0.3 percent of GDP, with a median of 0.17 percent. Iran collects 0.015 percent (also see below) and Somalia 0.01 percent.

A few countries collect substantially more: Jordan raises 2.6 percent of GDP, the occupied Palestinian territory 2.4 percent, Tunisia 1.6 percent, Morocco 1.1 percent, and Egypt 0.8 percent (excise alone). Tobacco taxes account for 6 percent to 13 percent of government revenue excluding grants in Jordan, the occupied Palestinian territory, and Tunisia. These examples show that higher collections are achievable within the region.

Low tax rates appear to explain much of this. The IMF review finds that total excise revenue in the region has fallen by about 1 percentage point of GDP since the late 1990s and attributes this mainly to low rates on tobacco and fuel, the two largest excise bases. Differences in smoking do not account for the pattern. Adult smoking prevalence in Lebanon was twice that in Morocco in 2021 (22 percent versus 11 percent), yet Lebanon collects about a fifth as much tobacco tax relative to GDP (Table 1).

Many countries also lack a proper excise system. Djibouti, Egypt, Iran, and Kuwait, and fragile states such as Iraq, Libya, Somalia, Sudan, and Yemen, tax tobacco through higher sales tax rates or customs duties rather than a dedicated excise law. Iran, for instance, applies higher VAT rates to cigarettes, ranging from 25 percent on local brands to 75 percent on imported ones in 2024. Iran’s very low figure in Table 1 partly reflects reporting: WHO records only an excise component for Iran, with no VAT figure, so the table understates its tobacco tax take. But the burden is still low: the IMF review puts all of Iran’s excise-type revenue at about 0.4 percent of GDP in 2020.

Cross-country comparisons tell a similar story. Tobacco excise revenue in developing economies averages about 0.4 percent of GDP, compared with an estimated benchmark of around 1.5 percent. A benchmarking exercise covering up to 97 countries finds that countries collect, on average, about 48 percent of their benchmarked tobacco revenue. Among the region’s countries in the sample, Morocco and Tunisia are close to their benchmarks, while Kuwait, Oman, Qatar, Djibouti, and Somalia fall well short.

Some caveats matter. Revenue-to-GDP ratios understate tax effort in oil exporters because oil output inflates GDP. Moreover, Bahrain, Saudi Arabia, and the United Arab Emirates introduced excise systems in 2017, and Oman and Qatar in 2019, with sharp increases in cigarette prices; Kuwait taxes tobacco through a 100 percent customs duty instead. Table 1 captures these excises for Oman, Qatar, Saudi Arabia, and the United Arab Emirates, whose data are for 2023, but not for Bahrain, whose latest WHO data (2015) predate its excise. Even with the new excises, these four collect 0.3 percent of GDP or less from tobacco. Kuwait’s figure reflects its customs duty. Thus, the figures for Bahrain and the other Gulf countries are not fully comparable because they refer to different periods and, in some cases, different tax arrangements.

Scope for additional revenue

The benchmarking exercise provides a rough guide for 11 countries in the region by comparing tobacco revenue across countries with similar income, openness, demographics, and governance. The gaps indicate relative position, not readily collectable revenue. They should not be interpreted as estimates of the revenue that governments could immediately raise through higher tax rates.

With this caveat, three patterns emerge. Estimated gaps in Bahrain, Kuwait, Oman, and Qatar are large—1.7percent to 3.3 percent of GDP—but probably overstated, as they imply very high tobacco revenue per person. There may be scope for gains in Djibouti (about 1.1 percent of GDP), Tunisia (0.6 percent), and Morocco and Lebanon (about 0.2 percent each). Afghanistan, Libya, and Somalia appear close to the limits of their capacity.

The IMF review points in a similar direction by a different route. It finds that cigarette prices in Egypt, Iraq, Jordan, Lebanon, and Tunisia are low relative to smoking prevalence and well below Gulf levels, suggesting room for higher excises, even in Jordan, which already collects more than any other country in the region. It also notes that water-pipe tobacco is widely undertaxed. This suggests that opportunities for additional revenue extend beyond conventional cigarettes to other tobacco products.

Realizing gains in tobacco taxation would depend on tax administration and control of illicit cross-border flows. Effective excises require licensing and control of the whole supply chain, from production or import to sale; countries without a dedicated excise law would need one first. Stronger enforcement would also be needed to prevent tax increases from encouraging illicit trade. It requires regional cooperation against smuggling. Middle-income countries with broader tax systems, including Iran, Pakistan, Egypt, and Lebanon, may be better placed to raise additional revenue; near-term gains seem unlikely in conflict-affected Afghanistan, Somalia, Sudan, and Yemen. Simple, inflation-adjusted specific excises, tax stamps, and regional coordination would help across countries.

The distinction between tax potential and capacity is important for prioritizing countries. The benchmarking exercise identifies countries where tobacco tax collections are low relative to estimated potential, while administrative capacity determines how readily that potential can be realized. Thus, Djibouti, Tunisia, Morocco, and Lebanon offer identifiable opportunities based on the benchmarking results, while Iran, Pakistan, and Egypt may be promising candidates because of their broader tax systems.

Linking tobacco revenue to health through soft earmarking

Soft earmarking links tobacco revenue to health spending through budget commitments rather than legal restrictions. For example, a government could pledge in its budget documents to increase health spending by at least the additional revenue from a tobacco tax rise and report annually on delivery. Hard earmarking, in contrast, allocates revenue to health by law.

The main argument for earmarking is political. Support for higher health taxes often rests on a credible link between the revenue and health spending. Country studies suggest earmarking can strengthen public support and increase preventive spending. But funds are fungible: without an increase in total health spending, earmarked revenue may simply replace other health funding.

Egypt provides a regional example. Its Universal Health Insurance Law allocates to the new insurance scheme a fee of EGP 0.75 per cigarette pack, increasing by EGP 0.25 every three years, and a 10 percent tax on other tobacco products. A tobacco levy has also been earmarked for student health insurance since 1992.

There is also a broader health dividend. Higher tobacco taxes can reduce tobacco consumption and, over time, the incidence of tobacco-related diseases. Their contribution to health policy therefore extends beyond the revenue they generate: they can simultaneously strengthen health financing and reduce future demands on health systems.

Implications for the Commission

Higher tobacco taxes could help finance the health workforce, but their contribution would be limited. In non-oil countries that appear to have room, additional revenue might be in the range of 0.2 percent to 1 percent of GDP, though these estimates are indicative only. That would equal a few percent to about half of current domestic government health spending: useful at the margin, but insufficient where health spending is around 1 percent of GDP or less.

The Commission should consider three priorities:

1. Prioritize countries with both revenue potential and collection capacity. Iran, Pakistan, Egypt, Lebanon, and Djibouti have low or moderate tobacco revenue and tax systems capable of raising more. Morocco and Tunisia have identifiable opportunities based on benchmarking exercise, while their estimated gaps are smaller. Fragile states need stronger tax administration and border controls.
2. Choose simple, inflation-indexed specific excises, set in dedicated excise law. Where tobacco is now taxed through sales taxes or customs duties, a separate excise law would help. Support excises with tax stamps and cooperation with neighboring countries to curb smuggling.
3. Protect the overall health budget through soft earmarking. Commit, for example, to raising health spending by at least the additional tobacco revenue, rather than paying salaries directly from the levy. Egypt’s universal health insurance earmark provides a regional reference.

Tobacco taxes are only one financing tool. In most countries, broader revenue reform and the priority assigned to health in the budget will matter more for the health workforce. The Commission should therefore encourage tobacco taxation as part of a wider domestic resource mobilization strategy, recognizing its double dividend: additional revenue for health and lower tobacco consumption, with potential health gains over time.

Table 1. Tobacco taxes, government revenue and health spending (% of GDP, latest year available)

Notes: Year is the latest year each country reported to WHO; all three ratios refer to that year. Tobacco tax revenue is total tobacco taxes (excise, VAT, import duties and other levies) where WHO reports a total; ^a sum of the components WHO reports where it gives no total; ^b excise only. ^c Health spending for 2023, the latest year available. Revenue covers general government where available, otherwise central government. ". . ." = not reported; n.a. = not available.