International tobacco firms want Romania to raise taxes gradually

BUCHAREST – European Union candidate Romania will begin to raise tobacco taxes in July, a move the cigarette industry said yesterday would only hurt local business and encourage smuggling. Romania, which produces 36 billion cigarettes a year, plans to bring taxes up to the EU level between 2003 and 2010 as part of its EU entry obligations to reform its tax system and bring health policies to Western norms. International tobacco firms, which produce 78 percent of the cigarettes sold in Romania, the second-biggest market in Eastern Europe after Poland, said the seven-year period was too short. In a country where 6 million out of 22 million people smoke and monthly salaries average $130, the hike will only dent legal sales and turn consumers to the black market, the companies say. «Romanians are among (Europe’s) poorest,» said Florenta Dinu, financial manager at Papastratos Romania, a unit of Greece’s Papastratos Cigarette Co. «The needy would resort more actively to buying from smugglers.» Tobacco firms British American Tobacco (BAT), Japan Tobacco, Philip Morris and Papastratos have asked the government to propose to Brussels a longer transition period so taxes would reach EU levels in 2012. «We forecast dropping sales and shocks on the local market if the (transition) period ends in 2010. It’s unrealistically tight,» BAT Romania’s corporate affairs director, Adrian Popa, told Reuters. Gradual tax hike According to the government plan, taxes are set to gradually increase to 64 euros ($68.92) per 1,000 cigarettes by 2010 from 11.87 euros at present for the most popular market segment; the cigarettes costing 20,000 lei ($0.58) a pack. Romania’s chief EU negotiator Vasile Puscas argued that the plan was best suited for Romania, which aims to join the EU in 2007. «We’ve discussed the plan with tobacco firms. It’s quite obvious that one or more players might be affected in the short-term,» Puscas said. The first hike is due to take place in July, when taxes would rise by three euros to 14.87 per 1,000 cigarettes. «The faster the alignment is, the more dramatically smuggling would rise and our profits would fall,» BAT’s Popa said. He said the black market for cigarettes was estimated at 5 percent of the country’s overall tobacco output. The EU, where cigarettes cost up to 5 euros for a pack of 20, has cracked down on smokers within its borders through tough labeling laws and a ban on tobacco advertising. Romania has been trying to do the same, banning most media advertising. However, Romanian-produced cigarettes are among the cheapest in the world, with retail prices ranging from 40 cents per pack for a plain domestic brand to around 1.50 euros for top brands. EU negotiator Puscas said the tax increase would help the country’s drive to diminish the harmful effects of smoking, in line with EU health rules. The money collected would support programs to raise awareness and encourage smokers to quit.