Slovak media informed during weekend about possible excise tax increase in Slovakia as of 1 January 2008 and then also as of 1 January 2009. No specific figures were mentioned as the decision should come only this week.
Although we have not expected two step excise tax hike but rather one large as of January 2009. Slovakia should meet the same conditions as other EU members, i.e. minimal taxation of EUR 64/1,000 sticks and excise tax should form at least 57% of retail price but in comparison to the Czech Republic one year later, i.e. January 2009. Note that 57% condition has already been fullfilled, when the minimal tax is currently SKK 1.7/piece and specific tax is SKK 1.1/piece + 23% ad valorem tax. Although we have previosly expected only one large jump in excise tax to SKK 2.0/piece for minimal and SKK 1.3/piece + 28% for specific and ad valorem due to inflation concerns and Slovak efforts to enter EMU. Based on appreciation of SKK agains EUR in recent weeks and change in our forecast for end-of-period exchange rates we expect the retail price to increase by only 11-16% from current levels until January 2009 in comparison to previous estimate 20-26%. Two-step increase could in fact be beneficial for the whole tobacco market there as Slovakia had historically problems with large amount of illicit product on the market. We don’t expect PM
CR to subsidize their brands there based on fact that with last excise tax increase in January 2006 company more than fully reflected this increase in retail price.