Hazy days for smokers

Last week saw another rise in the excise tax on tobacco products. The tax, levied on units of 1,000 cigarettes, was increased from EUR 36 (zł.137) to EUR 47 (zł.179).

This is another in a series of hikes aimed at bringing the Polish excise tax up to the level required by the EU. With EU regulations obliging member states to introduce a EUR 64 (zł.243) excise tax on the most popular kinds of tobacco by 2009, this is obviously not the last bit of bad news for smokers. "The excise tax will be increased significantly and surely this will be reflected in prices," said the president of Philip Morris Polska (PMP), Andrzej Dšbrowski.

"The price increases will be huge ... it's going to be a difficult three years [for smokers]," he added.

Knowing that price remains a key factor for most consumers, tobacco producers have increased their offer in the cheap-cigarettes segment (costing zł.4.50-5.50 per package). Since May 2004, 68 new down-market brands have been introduced.

Furthermore, the first seven months of 2006 saw a price battle between tobacco producers in Poland, who lowered the prices on cigarettes from the medium-price sector. "As a result, in May the cheap segment, including discounted cigarettes from the medium-price sector, amounted to 82 percent of the market," the PMP president underlined.

The structure of the excise tax in Poland has lead to unexpected side effects. Part of the excise tax is calculated as a percentage of the price, while another part is a quota tax. Therefore, the lower the cigarette price is, the lower the excise tax, thereby contributing to the high consumption of cheaper cigarettes. What's more, different tobacco products are taxed differently. While the average excise tax on cigarettes is zł.181 per 1,000 units, in the case of loose tobacco it's zł.70 and for pipe tobacco it's only zł.39. The prices for loose and pipe tobaccos are based on an estimation of how many cigarettes could be rolled.

For this reason, many of those previously using tobacco for hand-rolled cigarettes have switched to pipe tobacco. The consumption of the latter rose from an estimated two million cigarettes in 2005 to 3.3 million last year. "It's against all logic that different tobacco products are taxed differently," Dšbrowski summed up.

The excise tax is the main tool by which the government aims to regulate the tobacco industry, to limit smoking as well as increase the budget's income. "Moving from the more expensive segments to cheaper ones doesn't affect consumption and furthermore it decreases budget income," said Dšbrowski. And there is plenty to lose. According to PMP's estimates, the company contributed 2.8 percent of Poland's budget income. The whole industry's contribution is estimated at over five percent.

Another issue worrying the industry is a potential ban on smoking in public places. The ban has already been imposed in a number of European states, including France. PMP states that it supports the ban in schools, hospitals as well as public areas such as shopping malls; however, in the case of "bars, discos and restaurants, the needs of both smokers and non-smokers should be taken into consideration," which means creating specified smoking areas for smokers.