As expected, outgoing government approved proposed excise tax hike effective which should be effective as of 1 January 2007. 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 outgoing Finance Minister said that there needs to be another tax hike from 1 January 2008.
Our view:
As we previously informed the hike from 2007 still needs to be approved by the Parliament, which will take same time due to political deadlock. Nonetheless we expect Parliament to approve it as well and thus meet EU requirements in advance. 2008 hike is probable due to budget issues but we believe not driven by EU requirements as minimal taxation will be met.