According to daily Pravo, tobacco producers will negotiate with new Ministry of Finance over milder cigarette excise tax hike than proposed by previous government. Their plan was to increase tax from EUR 48 to EUR 62 per 1,000 cigarettes from beginning of 2007. Tobacco producers call for EUR 56 tax applied from April 2007 and EUR 64 from 2008 as substantial tax hike could lead to significant increase of illicit products in Czech Republic. Tobacco producers are on the other hand ready to limit their inventory build up so that effect on state budget would not lag several months as it does now.
Our view:
Ministry of Finance already expressed that he plans to meet only minimum EU requirements, which is EUR 60 per 1,000 cigarettes from the beginning of 2007. Lower than minimum EU requirements could possibly result in some sanctions, although some unofficial talks have reportedly been already made in Bruxelles which sees only one real deadline of 2008 with EUR 64 tax. Any more gradual way of convergence to EU level would be positive as cigarette consumers won’t be hit so dramatically and would not switch their preferred brands in such an extent. Note that PMCR has 8 out of 10 top selling brands on the market.