The Czech finance minister, Bohuslav Sobotka, yesterday announced that the excise tax on cigarettes will be raised by 400 bps to 44% of the retail price as of December 2002 (we had expected a 3.4% hike in January 2003).
The tax increase will affect PM CR’s revenues in 2003 and onward (we expect net profit to decline by almost 3% to CZK 3.54 bil. in 2003), but a likely large accumulation of inventory by retailers in Q4 2002 will boost 2002 sales.
The minister did not specify any further tax adjustments after 2003, but we expect the government to favor either a linear tax increase beginning 2003/4, or an accelerated one (toward EU excise-tax harmonization by 2007). As the announced tax hike is slightly larger than expected, the news is negative for the stock.
The Cabinet is scheduled to discuss the excise-tax proposal on Sunday, September 8, and we expect Parliament to approve it at its next meeting (September 12).
(Jan Hajek)