Japan - cigarette taxes increase may be less than expected..

December 4, 2009 - Back on November 23rd in an editorial Prime Minister Yukio Hatoyama told the Diet (the Japanese parliament is called the Diet) that an increase in the tobacco tax should be considered from the viewpoint of improving people's health. (Japan - prime minister calls for tobacco tax increase..)

Investors in Japan Tobacco (JT) were relieved by a report that the government would hike taxes on cigarettes by less than expected. Shares of Japan Tobacco (2914.T) gained the most in 13 months on Thursday, December 3rd.

The Japanese government plans to raise the tax on tobacco by a few yen per cigarette, Kyodo news agency reported, a much smaller increase than the 10-20 yen anticipated by some market participants. (Kyodo News Agency: The government is considering raising Japan's tobacco tax by around 3 yen per cigarette starting in fiscal 2010 to "improve public health," ruling party lawmakers said Thursday, December 3rd. "It's positive if the tax hike is only 2-3 yen per cigarette, as there have been concerns about a much heftier hike, like pushing up prices to 500 yen a pack or more," said Takeshi Osawa, senior fund manager at Norinchukin Zenkyoren Asset Management.

A pack of 20 cigarettes in Japan costs around 300 yen ($3.40), including a tobacco tax of about 175 yen or 58 percent.

While a higher tax on tobacco was not among the key campaign pledges by the Democratic Party, which took office in September, Prime Minister Yukio Hatoyama is advocating one to curb smoking. Some government officials have said tobacco prices in Japan are not high enough to discourage smoking compared with other developed countries, fuelling speculation about a large tax hike.

Cigarette taxes have been raised three times since 1998, but only by 1 yen per cigarette, ensuring that tax revenue stays around the 2 trillion yen mark. Tax revenue from cigarettes in fiscal 2007 stood at 2.27 trillion yen. They are currently taxed at 8.7 yen per cigarette. A government tax committee will finalize its outline for a reform of the tax system by December 11th. (Tax hike planned for cigarettes in Japan, The Mainichi Daily News, 12/3/2009)

JT controls 65 percent of the Japanese market and the government still owns half of the former state monopoly.

Reference: UPDATE 1-JT shares jump on report of smaller tax hike by Taiga Uranaka, Reuters, 12/3/2009; Japan Tobacco Rises After Report on Cigarette Taxes (Update1) by Junko Hayashi, Bloomberg.com, 12/3/2009.

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