Czech Republic - Philip Morris decides not to pass on tax increase to smokers..

February 13, 2010 - On January 1, 2010 an excise tax hike on tobacco went into effect should have led to a 2.50 Kč (13 U.S. cents) price increase per pack of cigarettes. However, many smokers are unlikely to see an increase in the price of their preferred brand due to the decision of one Czech tobacco industry leader.

Philip Morris, the largest tobacco distributor on the Czech market, has decided not to pass on the tax increase to smokers of its flagship brand, Marlboro, but will pay the tax themselves. The Czech Republic's most popular brand of cigarette is , produced and distributed by Philip Morris. Other premium cigarette manufacturers are unlikely to raise their prices as a result.

Philip Morris will increase the price of its non-premium cigarettes, however, according to Andrea Gontkovičová, director of corporate affairs for Philip Morris Czech Republic, but there will be a delay before existing stocks with lower excise tax stamps are sold and the more expensive cigarettes hit stores, she said.

The EU has called for further excise tax increases of 90 euros per 1,000 cigarettes before 2014, which will lead to an approximate increase of 12 Kč per pack in the Czech Republic, depending on the exchange rate, said Kamil Provazník, executive at Imperial Tobacco Czech Republic.(European Union - agrees to raise the minimum tax on tobacco products sold in the region..)

Due to the highly competitive nature of the Czech cigarette market, of which five companies hold 95 percent dominance, smaller cigarette manufacturers - such as Imperial Tobacco, which produces and distributes Davidoff, Rizla and Gauloises, among others - are forced to follow Philip Morris' lead on pricing. Imperial Tobacco, No. 3 on the Czech market, will not increase prices on most brands of cigarettes this year as a result of Philip Morris' decision, explained Provazník.

The 2010 tax hikes come just two years after the largest tobacco excise tax increase in history raised prices an average of 6 Kč per pack. As prices continue to increase, many smokers are switching to cheaper brands and loose tobacco, meaning that every crown counts for tobacco producers.

One unintended consequence of rising European tobacco taxes has been the increase of counterfeit branding and illegal smuggling of cigarettes from East European countries not subject to EU tax laws. EU agents recovered almost 750 million contraband cigarettes in 2009, including 8,500 cartons of Ukrainian cigarettes Austrian police discovered in a truck driven by a Czech man June 26. Such activity is bound to increase as excise taxes continue to swell, according to Lászlo Kovács, EU commissioner for taxation.

Reference: Cigarette tax affects budget brands EU mandates push up price tag for nonpremium smokers, by Stephan Delbos - Staff Writer, The Prague Post, 2/10/2010.

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