The lower house of Parliament approved government proposal that called for raised excise taxes on cigarette as of January 2004. The bill now faces passage in the Senate to be signed into law by the president.
The excise tax on cigarettes would thus rise to CZK 0.48 per cigarette plus 23% of the price for a consumer (retail price).
The current tax is CZK 0.36 per cigarette plus 22% of the retail price. This would increase the effective excise-tax burden from 40% of the retail-price per pack to approximately 44% in 2004, as regards the leading domestic cigarette brand, Petra (a Philip Morris CR brand). As a result, Petra’s per-pack retail price should rise from the current CZK 40 to CZK 46 per pack next year, we estimate.
The tax increase is modestly lower than we had expected; nevertheless, this does not significantly change our valuation of Philip Morris CR stock, because the tax burden on cigarettes must reach 57% of the retail-price per pack by 2007 anyway, as required by the European Union (the Czech Republic is expected to join the EU in May 2004).
Jan Hájek