Japan Tobacco damns tax plans

Japan Tobacco Inc said a proposal to triple cigarette prices through higher taxes would devastate the nation's tobacco industry and could hurt the share price of the world's third-largest publicly traded cigarette maker.

"It would be disastrous harm for consumers first and the industry as well," President Hiroshi Kimura said in an interview at the company's Tokyo headquarters. "Any tax hike is going to be very challenging for us."

Lawmakers have proposed raising taxes for Japan's cigarettes, which sell for less than a third of the UK price, to fund rising welfare costs in a country where smoking kills about 100,000 people a year. It comes as the maker of Camel cigarettes battles tobacco prices, a declining smoking rate and controls on vending-machine purchases that account for more than half its $31.4 billion in domestic tobacco sales.

"The discussion about tax adds to uncertainty around JT's domestic business," Erik Bloomquist, a London-based analyst at JPMorgan Securities Ltd., said. "Over time it's inevitable that taxes will rise - the timing and magnitude of any increase, along with any manufacturer price increase, are what's critical."

Higher taxes could quicken a decline in cigarette sales in Japan, where the percentage of men who smoke has fallen by half over the past 40 years to about 40 percent because of an increase in health consciousness. Japan Tobacco's operating income from cigarette sales in the country slid 9.4 percent to 222 billion yen ($2.1 billion) in the 12 months through March.

A group of lawmakers from Japan's ruling and opposition parties is scheduled to meet today to discuss raising taxes.

Welfare costs

Hidenao Nakagawa, a former secretary-general of the ruling Liberal Democratic Party, wants the government to consider a proposal to more than triple the retail price of a pack of cigarettes to 1,000 yen to help fund rising health and welfare costs, the Nikkei newspaper said last Friday.

Japan Tobacco shares fell as much as 5.3 percent to 450,000 yen yesterday, their lowest since Sept 29, 2006. The stock traded 4.8 percent lower at 1:02 pm and has slumped 12.3 percent in the past week.

If consumption remained unchanged, increasing the price for a pack of cigarettes to 1,000 yen would add as much as 8.5 trillion yen to tobacco tax revenue from the 2.28 trillion yen raised in 2007, according to Kyohei Morita, chief economist at Barclays Capital in Tokyo.

"I don't find any reason why only one segment of consumers - cigarette smokers - should bear such a cost," Kimura said. "The tax system must be fair and unbiased."

Cheapest cigarettes

Along with Taipei, Tokyo is the city with the world's most affordable cigarettes, according to a study published in the journal Tobacco Control in December.

Taxes currently account for 189 yen of the price of a 300- yen packet in Japan.

The government should sell down its 50 percent stake in Japan Tobacco if it needs to raise revenue rather than increase taxes, Kimura said.

Talk of higher taxes comes as Japan Tobacco battles increasing costs for tobacco leaf, packaging and other raw materials.

The company, which markets about 30 cigarette brands in Japan, needs to be "careful" in considering any increase in prices, Kimura said.

"We need to consider our pricing policy in the future, but it should not be a drastic one in this market," he said. "Japanese consumers are very price sensitive."

Agencies

(China Daily 06/13/2008 page16)