State budget proposal introduced yesterday by current Finance Minister for 2007 counts with excise tax level required by EU already in 2007. Czech Republic negotiated transition period until 31 December 2007 to meet requirements that excise tax should create at least 57% of retail price for the most popular price category and EUR 64 per 1,000 pcs.
Until now there was no clear intention of the government how the excise tax hike will be conducted. There were speculations of two more hikes on 1 January 2007 and 1 January 2008. However this news shed a little light on tobacco sector in Czech Republic. No specific values have been mentioned so far. Nonetheless if the proposal will be passed there will be only one more excise tax hike on 1 January 2007, which will by however more significant then expected. Thus we see the news negative as the price increase may further intensify consumer migration to cheaper brands. On the other hand this could be the last hike and thus PMCR would become cash cow for investors later on.