According to update from the Ministry of Finance, excise tax increase proposal effective as of 1 January 2007 count with minimum tax of CZK 1.75 per cigarette or specific tax CZK 0.85 per cigarette plus 32% ad valorem tax from the retail price. This excise tax increase should bring the taxation of tobacco products to the level required by EU in advance. EU requires excise tax to form 57% of retail price for the most popular price category. In addition excise tax should reach EUR 60 per 1000 pcs and EUR 64 per 1000 pcs by the end of 2006 and 2007 respectively. Currently most popular price category is medium segment. Proposed tax hike could result in price increase of average 20%, with more pressure on lower price segment.
If the proposal will be passed it should be the last excise tax hike for tobacco products compared with two previously speculated (one as of 1 January 2007 and as of 1 January 2008). These figures are basically in line with the speculations, only ad valorem proved to be on the upper ban of speculations of 30-32% range. Thus we see the news slightly negative as the price increase would be probably a little bit more significant than expected. However there might be a threat that cigarette producers won’t be willing to increase retail prices fully as domestic consumers are extremely price sensitive. On the other given that this is the last excise tax hike, once the increase materialize there should not be any more difficult environment for PMCR in Czech Republic in years to come afterwards. Nonetheless current Minister of Finance speculates that this doesn’t need to be the last tax hike and he sees another tax hike from 1 January 2008. Note that the situation after 2007 is not completely clear as excise tax hike won’t be driven by EU requirements and everything will depend on the stance of future government.