Philippines - Philip Morris expects weaker demand this year..

March 9, 2011 - PHILIP Morris Fortune Tobacco Co. Inc. (PMFTC) said it saw a decrease in the demand for cigarettes in the early part of the year following the increase in the excise tax in January. )Philippines - PMFTC has 90% of the tobacco market..)

Chris Nelson, president of PMFTC, said the industry may have difficulties in exceeding last year’s record sales amid the increase in the excise tax slapped on cigarette products. Nelson said the escalating political crisis in the Middle East, which is a major destination for Filipino workers, could also be a factor in the slowdown in the demand for cigarettes. “Last year, it was a matter of higher volumes and strong demand. But this year, what’s happening in the Middle East might also have an impact on sales,” the executive said, without disclosing figures.

“Let’s not forget that there was an increase in the excise tax on cigarettes in January and higher prices would understandably affect demand,” Nelson said.

But the market would continue to grow because of favorable demographics like the country’s increasing adult population, he said. He said the industry’s growth has always been linked to the country’s population, which has been growing by 1.7 percent to 1.8 percent every year. Since 2005, the industry has grown by an average of 2 percent to 3 percent a year.

“The market is very price sensitive since it is a factor of the consumer’s disposable income. Any sharp, unpredictable tax increase would depress the market,” Nelson said. “It would be reasonable to assume that demand would be affected but overall, the industry outlook, not specific to 2011, is favorable. The only caveat is that the right excise tax system must be in place,” he added.

The cigarette maker has been pushing for the extension of the current excise tax system, which is expiring in 2013. (Philippines - PMFTC appealed for govt to keep present tax system for cigarettes..)

“Excise tax collection on cigarettes have increased substantially to P31.6 billion last year, exceeding the government’s target of P25 billion. This proves the system works, so there is no reason for it to be changed,” Nelson said.

Republic Act 9334, or An Act Increasing the Excise Tax Rates Imposed on Alcohol and Tobacco Products, provides for increases every two years from 2005 to 2011. The scheme provides that alcohol and tobacco products are placed in four categories with varying tax rates. “There are not many laws in many countries which have worked as well as RA 9334 that allowed government to collect more taxes and at the same time, enabled the industry to plan. It is a resounding success. It is working very well so why fix it,” Nelson said.

Since January 1, cigarettes packed by machine with net retail prices of below P5 (0.11 USD) per pack would be taxed P2.72 (0.06 USD). Those priced P5 but not exceeding P6.50 per pack shall be taxed P7.56 (0.17 USD), while those priced P6.50 without exceeding P10 would be taxed P12 per pack. Those priced above P10 per pack would be taxed P28.30 (0.65 USD) per pack.

Reference: Philip Morris expects weaker demand this year by Katrina Mennen A. Valdez, The Manila, 3/9/2011.

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