Approving proposed excise tax hike, that was presented two weeks ago, is on agenda for tomorrow government meeting, MF daily informed. We remind that the hike counts with minimal tax of CZK 1.75/piece in comparison to current level CZK 1.36/piece applied on cheaper brands and CZK 0.85/piece + 32% of retail price in comparison to current level CZK 0.73/piece + 25% of retail price applied on more expensive brands. As we already informed government decided to meet minimum 57% level of taxation in advance as of 1 January 2007. Further more EU requires the minimum excise tax duty to be EUR 60 per 1,000 cigarettes from 1 January 2007 and EUR 64 from 1 January 2008. As a matter of fact current Finance Minister says that there needs to be another tax hike from 1 January 2008.
We expect the 2007 excise hike proposal to be passed by the government and consequently by the Parliament even though current political situation could lead to some delays. Excise tax hike as of 2008 seems at the moment completely as a political play to finance budget deficits and not driven by EU requirements. 2007 excise tax level, together with prospect of slight CZK/EUR appreciation shows that there is no obstacle to meet EUR 64 level per 1,000 cigarettes. Nonetheless prospect of accelerated consumer switch to lower price segment brands is expected, which could hurt once again PMCR if no regulation of pre-stocking is implemented.