Finance Minister Bezalel Smotrich is expected to sign a new taxation order targeting smoking-related products, introducing a NIS 350 per kilogram excise tax on tobacco substitutes along with a 4% customs duty.
The measure, now in its final stage before approval, is intended to address what officials describe as a previous taxation gap that contributed to the growth of a large black market.
Under the proposed framework, tobacco substitutes that are not formally classified as smoking-cessation aids will face steep taxation. At the same time, taxes on e-cigarette liquids are set to drop sharply - from NIS 20 per milliliter to just NIS 1 per milliliter - marking a significant shift in policy.
If implemented, the new tax is expected to add roughly NIS 25 to the cost of a typical tobacco substitute package currently priced at around NIS 25, effectively doubling its retail price.
Industry figures argue the move could have severe consequences. Retailers and manufacturers warn that similar policies in the past led to the collapse of the legal market and fueled illicit trade.
“The previous tax reflected a ‘kill the market’ approach," said Moshe, who owns a chain of smoking-product stores. “What followed was a very aggressive black market, while the legal market nearly disappeared. Now the state is repeating the same mistake."
Roi Relief, a domestic manufacturer of tobacco substitutes, also criticized the proposal, saying it fails to distinguish between different types of products. “Items designed to help people quit smoking - with and without nicotine - are all being treated the same," the company said. “An industry that was beginning to develop, even for export, is now at risk of being wiped out."
CPA Tzefanya Barzilai, an importer of cigars and tobacco substitutes, pointed to what she described as the unintended consequences of past taxation. “Since hookah tobacco was taxed, legal imports have nearly vanished," she said. “Most of the supply is now grown in the territories and smuggled in. Shops are filled with Palestinian tobacco, and the state collects no revenue."
Even if signed, the order will still require approval from the Knesset Finance Committee, which has the authority to block it within two months. Industry representatives are urging lawmakers to hold an urgent debate before the measure moves forward.
In response, the Israel Tax Authority said the proposal is the result of extensive internal work conducted in coordination with multiple agencies, including the Health Ministry. According to the authority, the reform is part of a broader legislative effort that includes revising the tax structure and introducing comprehensive licensing and enforcement mechanisms. Officials estimate the changes could generate hundreds of millions of shekels in annual revenue.