Cigarette cos. seeing sales go up in smoke after excise tax increase
A 10% hike introduced at the beginning of the year gouged January and February sales, causing them to drop 12% compared to the same period in 1998, said Artur Dmochowski, general director of the National Tobacco Industry Association (KSPT).
That January tax hike followed a previous 5% increase in March 1998. Additional tax increases, both at 5%, are also scheduled for June and September 1999.
"Usually the (Finance) Ministry's strategy is to try out what the market can take before it bleeds," said Ola Samulewicz, communications manager with cigarette manufacturer Philip Morris, which produces the Marlboro and L&M brands and several Polish labels. "Right now we estimate the market will be permanently down by 1-2%."
The government's aggressive tax movement in 1999 is a marked change from previous years when excise levels were increased only once a year. Although Samulewicz could not recall the percentages of previous years' increases, she did say that in 1997 the excise tax was zl. 60 per 1,000 cigarettes, and zl. 76 in 1998. Currently, the excise tax is zl. 88 and is expected to reach zl. 97 by year-end.
While manufacturers admit that dealing with rising excise taxes is a fact of life here, they do complain that the constantly rising rates makes planning difficult. "You cannot have a stable price policy or marketing policy," Dmochowski said.
One thing producers would like is at least to be included in discussions with the Finance Ministry or other bodies on future increases, Dmochowski said.
Anna Klosowicz, public relations manager at Rothmans of Pall Mall said that while companies usually pass excise tax increases onto the consumer, sometimes they take the hit themselves if they are interested in maintaining market share or think the increases are too severe in the short term."It depends on the company," she said.
Even though Rothmans plans to raise prices in proportion to tax increases, Klosowicz said the company was not worried about losing its 3.5% market share.
Smaller makers, however, who produce cheaper cigarettes may find their sales seriously hit by the increase. Those companies typically cannot afford to absorb the increase themselves and have to pass the additional amount onto consumers.
That January tax hike followed a previous 5% increase in March 1998. Additional tax increases, both at 5%, are also scheduled for June and September 1999.
"Usually the (Finance) Ministry's strategy is to try out what the market can take before it bleeds," said Ola Samulewicz, communications manager with cigarette manufacturer Philip Morris, which produces the Marlboro and L&M brands and several Polish labels. "Right now we estimate the market will be permanently down by 1-2%."
The government's aggressive tax movement in 1999 is a marked change from previous years when excise levels were increased only once a year. Although Samulewicz could not recall the percentages of previous years' increases, she did say that in 1997 the excise tax was zl. 60 per 1,000 cigarettes, and zl. 76 in 1998. Currently, the excise tax is zl. 88 and is expected to reach zl. 97 by year-end.
While manufacturers admit that dealing with rising excise taxes is a fact of life here, they do complain that the constantly rising rates makes planning difficult. "You cannot have a stable price policy or marketing policy," Dmochowski said.
One thing producers would like is at least to be included in discussions with the Finance Ministry or other bodies on future increases, Dmochowski said.
Anna Klosowicz, public relations manager at Rothmans of Pall Mall said that while companies usually pass excise tax increases onto the consumer, sometimes they take the hit themselves if they are interested in maintaining market share or think the increases are too severe in the short term."It depends on the company," she said.
Even though Rothmans plans to raise prices in proportion to tax increases, Klosowicz said the company was not worried about losing its 3.5% market share.
Smaller makers, however, who produce cheaper cigarettes may find their sales seriously hit by the increase. Those companies typically cannot afford to absorb the increase themselves and have to pass the additional amount onto consumers.
