Health tax on cigarette packs to rise on Thursday

Starting on Thursday, smokers will have to pay more for cigarettes, as tobacco firms pass the latest tax hike on to consumers.

Retail prices are expected to increase by between NT$5 and NT$10 per pack to reflect the rising costs, depending on each firm's marketing strategies, officials said.

Taiwan Tobacco and Liquor Corp (TTL, 台灣菸酒公司), the nation's sole tobacco manufacturer, appeared cautious due to its state-owned status.

"As a state-run enterprise, we cannot take the lead in hiking prices although price adjustment is inevitable in response to tax law revisions," TTL's president, Chen Wen-kai (陳文凱), said yesterday.

TTL, which manufactures the leading cigarette brand "Long Life" (長壽), enjoys a 40 percent share of the tobacco market. The firm sold 1.7 million boxes of cigarettes last year, raking in over NT$26 billion (US$805 million) in revenues.

Adopting a low-key attitude, TTL chairman Ray Dawn (董瑞斌) said last week that the firm might absorb costs and hike prices by only NT$5 per pack for some cigarette brands. Its other brands will still see prices rise by NT$10.

Considering the fierce competition, TTL will take into consideration importers' pricing strategies before reaching a final decision, Dawn said.

JT Tobacco International Taiwan Corp (JTI), which distributes one of the best-selling imported brands -- Mild Seven -- has been tight-lipped about the range of possible increases on its products.

An executive of another importer who refused to be named, said pricing is a sensitive issue, and if JTI decides to wage a price war regardless of the tax hike, other importers will have no alternative but to follow suit.

While pricing and the possible market reshuffle hinge on the market mechanism, the government should watch out for the possible surge of cigarette and tobacco smuggling to protect the interests of both consumers and manufacturers, the Tobacco Institute of the Republic of China (中華民國菸業協會) said.

Taiwan started to levy a special health tax on tobacco on Jan. 1, 2002. Statistics showed that cases of confiscated illegal tobacco products soared from 394 cases in 2001 to 1,834 cases in 2002. The value of the smuggled products jumped from NT$195 million in 2001 to NT$340 million in 2002, the institute said.

"This proves that the increase in the health tax on tobacco will cause serious problems as tobacco smuggling will dramatically increase," said Nancy Yin (尹乃馨), the institute's secretary-general.

Citing an academic study, Yin said when tobacco prices rise by 1 percent, sales of smuggled cigarettes jump by 160 percent.

"We call on the government to reinforce anti-smuggling activities to safeguard the government's tax revenues, manufacturers' interests and consumers' health," she said.

According to the amendments to the Tobacco and Liquor Tax Law (菸酒稅法) passed by the legislature early last month, the special health tax levied on a pack of cigarettes would double from NT$5 to NT$10. However, the actual cost of a pack would increase more than NT$5 as distribution and retail costs will increase and these will be reflected in the price tag as well.

The tax hike is expected to generate NT$6 billion in additional tax revenue for the National Health Insurance program.