According to insider from tobacco business, who closely cooperates with local government on setting the cigarette and tobacco excise tax there is no dispute about possible increase of excise tax for cigarettes above minimum EU required level of EUR 64. The proposal for minimal taxation that government is working with is CZK
1.8/piece which is CZK
1,800/1,000 pieces (or EUR 64/1,000 pieces at expected CZK
/EUR 28.0). Working version also expects specific and ad valorem tax to be 0.96/piece and 28% respectively.
However there is an issue about the taxation of smoking tobacco, which is currently taxed CZK
905/kg or EUR 32/kg (minimum requirement by EU for smoking tobacco) and the government aims to increase it to CZK
1,090/kg or EUR 39/kg.
The excise tax proposal for cigarettes is basically in-line with our expectations although we awaited slightly different composition of specific and ad valorem, i.e. 0.92/piece and 29% respectively, which however ends up with the same outcome as the government’s working version. The minimum excise tax should be slightly higher than our initial expectation of CZK
1.75/piece. Note however that this tax is used only in low-price segment and the fact that it increases more-than-expected could be seen positively from PM
CR’s side as it still has more products taxed with “specific+ad valorem” thus making low price segment cigarettes relatively less attractive.
Segment of smoking tobacco is tiny for PM
CR as it introduced roll-your-own products only during 2006 and it is not really their targeted segment. As almost 100% of PM
CR’s production is cigarettes where the taxation should reach only minimum EU required level we don’t see this news to be negative for PM