Israeli Government Proposes Sweeping Changes to Tobacco Taxation and Duty-Free Imports

In a significant move set to reshape the landscape of international travel, the Israeli Ministry of Finance has unveiled draft decrees aimed at imposing substantial tax hikes on cigarettes and eliminating tax exemptions for smoking products purchased at duty-free shops. The proposed changes are part of a broader effort to boost government revenues and curb smoking rates among adults aged 21 and over.

James Richardson, a prominent player in the duty-free retail sector, has recently sold its 50% stake in the duty-free store at Ben Gurion Airport, signaling a shift in the industry. The company, in collaboration with the Heinemann Group, has managed the airport's duty-free outlets in Terminals 1 and 3 since securing the contract in 2017. Despite generating an estimated $176.6 million in royalties annually for the airport authority, the prolonged economic impact of global events, referred to metaphorically as the "war of iron swords," has taken a toll on the duty-free operator.

The contract, spanning 10 years with a potential 3-year extension, has been a significant source of revenue for both James Richardson and the Israeli government. However, the recent challenges have prompted the company to divest its duty-free interests, and it has already begun preparations to exit the industry after five decades of operation.

The Ministry of Finance anticipates that the proposed tobacco taxation adjustments will contribute an additional NIS 400 million annually to the state's coffers. Simultaneously, the measures aim to address public health concerns by discouraging smoking, particularly among the 20.1% of the population aged 21 and over who were smokers in 2020—well above the global average.

As Israel looks to align itself with international trends in tobacco control and revenue generation, these proposed changes may mark a significant turning point for both the duty-free retail sector and public health initiatives in the country. The transition is expected to impact hundreds of employees in Israel while presenting new opportunities for the duty-free industry in other global markets, including an imminent foray into the Australian market by James Richardson.