Tobacco giant wants additional duty on cigarettes as a health measure
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Multinational tobacco giant Philip Morris, which enjoys a 70 per cent share of the Finnish tobacco products market, has suggested raising the duty on cheap cigarettes as a means of reducing smoking. According to the company's representatives, the current taxation system favours cheap cigarettes and does nothing to reduce consumption.
If the minimum tax on a pack of cigarettes were to be raised by 23 cents to EUR 2.35, the Finnish state would reap around EUR 22 million a year and smoking would decline by three per cent, claims Philip Morris. The company's Marlboro, Belmont, L&M, and Chesterfield brands account for nearly three-quarters of all cigarettes sold in Finland
According to the company's calculations, such a tax hike would appreciably raise the price of cheap cigarette brands.This would, it is claimed, lead to a reduction in sales of something like 100 million cigarettes a year, but with a net gain in tax revenue.
"If the Finnish government wishes to change the taxation on cigarettes for health reasons, then increasing the minimum tax on a pack of 20 is a good means of doing so", says Huub Savelkouls, Philip Morris's Brussels-based Manager for Corporate Affairs Issues and Taxation.
The calculation is based on a World Bank study that argues that a 10 per cent increase in prices would cut cigarette consumption in the developed world by around four per cent.
During a visit to Helsinki, Savelkouls showed off statistics that supported the tax increases on health grounds.
In the background to the proposal is the tobacco giant's concern that branded cigarettes such as Marlboro are losing market share to a variety of cheap cigarettes.
In Finland, the price of a pack of 20 Marlboros has risen by just under six per cent over the past five years, keeping pace with inflation. The company's No. 2 brand L&M has in fact had to reduce its retail prices marginally in order to compete in the market share battle against the cheap cigarettes.
With Finnish income levels having increased markedly over the same five-year period, the real price of a packet of cigarettes measured against disposable income has fallen by as much as 16 per cent, claims Savelkouls. There, he says, is yet another reason to raise the level of duty.
"Finland is the only EU country that has made no adjustments to its cigarette taxation for a decade", Savelkouls notes with some astonishment.
One reason given for previous Finnish reluctance to raise taxes on cigarettes has been the fear that inexpensive personal imports from new EU member Estonia would take away a sizeable chunk of the sales, thus reducing tax revenue. Officials are also worried about very cheap Russian cigarettes and the illegal trade in cigarettes, which is now allegedly a good deal more profitable than that in alcohol.
The "minimum tax" referred to is set at 90 per cent of the statutory tobacco duty payable on cigarettes in the most-sold categories.
These include brands such as Marlboro, Barclay, and Camel, retailing at around EUR 4.20 for a pack of 20. However, as the cheaper brands gain in popularity with consumers, the most popular price-category may change downwards, so reducing tax revenue and at the same time encouraging higher consumption, argues Savelkouls.
The price of a packet of Marlboro without tax is approximately one euro, while the cheaper brands cost less than half of this amount. Discount stores such as Lidl have brought the cheaper brands onto the market in recent years and have grabbed market share, forcing the big multinationals to reduce their margins.
Helsingin Sanomat
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| 22.6.2006 - TODAY |
 Tobacco giant wants additional duty on cigarettes as a health measure
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