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Dismay in India over excise increases

| July 16, 2014

The Indian Finance Minister, Arun Jaitley, has steeply increased excise taxes on cigarettes as part of the 2014 Budget, prompting warnings about a rise in illicit trade, according to a number of stories in the latest issue of the BBM Bommidala Group newsletter.

The specific tax on cigarettes has been increased by 11-72 per cent, depending on the length of the product, with similar hikes being made on cigars, cheroots and cigarillos.

Excise has been increased from 12 per cent to 16 per cent on pan masala, from 50 per cent to 55 per cent on unmanufactured tobacco, and from 60 per cent to 70 per cent on zarda scented tobacco, gutkha and chewing tobaccos.

The Tobacco Institute of India said the steep duty increase on cigarettes, coming as it did on the back of sharp rises in the previous two years, would provide a further fillip to the growing illicit trade in India, which already accounted for 19 per cent of the cigarette market.

In particular, the 72 per cent increase on cigarettes in the less than 65 mm category would give a huge impetus to domestically manufactured, tax-evaded cigarettes.

‘Moreover, the very high increment will further accelerate the shift in tobacco consumption from cigarettes to cheaper and revenue inefficient tobacco products,’ the Institute said in a statement.

‘As a consequence the share of the legal cigarette industry, which is a mere 12 per cent of total tobacco consumption in India, will be further eroded.

‘In overall terms, the jump in duty on cigarettes will neither help revenue generation nor serve the objective of tobacco control.’

Meanwhile, flue-cured tobacco growers in Andhra Pradesh and Karnataka have also expressed dismay at the steep rises in tobacco taxes.

They believe that the increases could cause a dip in both domestic and export demand, a fall in prices and, therefore, a negative impact on their livelihoods.

High tobacco taxes increase revenue and reduce cigarette consumption in Turkey

| July 16, 2014

Smoking rates and cigarette consumption dropped dramatically in Turkey between 2008 and 2012/13, but tobacco tax revenue doubled, according to a story in the Daily Sabah quoting government figures.

The introduction of a ban on smoking in enclosed public places and an almost doubling of taxes saw the annual consumption of cigarettes fall by 15 per cent between 2008 and 2013, according to figures from the Turkish Tobacco and Alcohol Regulatory Authority.

And according to the 2013 World Health Organization’s Global Adult Tobacco Survey, the number of people smoking in Turkey fell by 1.2 million – or 7.5 per cent – to 14.8 million between 2008 and 2012.

But tax revenue from tobacco products rose from $5.2 billion in 2008 to $10.2 billion in 2013.

From May this year, taxes made up nearly 82 per cent of the retail price of a pack of cigarettes, making Turkey’s cigarette taxes the eighth highest in Europe.

Tobacco oligopoly is boon for taxman

| July 16, 2014

Commenting in Forbes on the recently announced proposed takeover of Lorillard by Reynolds American, Daniel Fisher said the deal would join the No.2 and No.3 US tobacco companies under the control of British American Tobacco, which would own 42 per cent of the combined company shorn by Imperial Tobacco of a number of brands and Lorillard’s distribution network.

‘In any other industry,’ he said ‘this concentration of market power would send Justice Department economists scurrying for their calculators to tot up the resulting Hirfendahl-Hirschman Index. ‘But tobacco is no ordinary industry. It’s already a virtual cartel, by design, thanks to the Master Settlement Agreement that the state attorneys general negotiated in 1998…’

Fisher went on to say that the stated premise behind the tobacco settlement, as well as Food and Drug Administration regulation of cigarettes, was to restrict the marketing and sale of cigarettes because they are deadly.

‘The reality is they are also one of the world’s most reliable sources of tax revenue, and tax authorities love the predictability of cartels,’ he said. ‘As the dominant companies’ continuing fight over how the settlement is enforced against new entrants shows, there is no incentive to let the unruly forces of market capitalism intrude into this industry.’

Fisher’s piece (which is well worth taking the trouble to check out) is at

RAI to webcast results conference call

| July 16, 2014

Reynolds American is due to host a conference call and webcast from 09.00 hours Eastern Time on July 29 following the release of its second-quarter 2014 financial results before the market opens on that day.

The conference call, which will be available on a listen-only basis, will hear from speakers Susan M. Cameron, president and CEO, Thomas R. Adams, CFO, and Morris L. Moore, vice president of investor relations.

The webcast will be at, where a replay will be made available.

Call-in numbers are: (877) 390-5533 (toll-free) and (678) 894-3969 (international).

RAI to acquire Lorillard, sell brands to Imperial

| July 15, 2014

Reynolds American Inc. (RAI) will acquire Lorillard for $27.4 billion. To help ease antitrust scrutiny that the deal may face, Imperial Tobacco has agreed to purchase the Kool, Salem, Winston, Maverick and Blu Ecigs brands for $7.1 billion, more than tripling its share of the U.S. cigarette market. Imperial will also acquire Lorillard’s manufacturing and R&D facilities in Greensboro, North Carolina and approximately 2,900 employees, including a national sales force.

Reynolds expects to have more than $11 billion in revenue and about $5 billion in operating income after the deal. RAI’s largest shareholder, British American Tobacco, supports the transaction and will maintain its 42 percent ownership in RAI through an investment of approximately $4.7 billion.

In addition, RAI and BAT have agreed in principle to pursue an ongoing technology-sharing initiative for the development and commercialization of “next-generation” tobacco products, including heat-not-burn cigarettes and vapor products.

Susan Cameron will continue as RAI’s president and CEO after completion of the deal. The company will remain headquartered in Winston-Salem. Murray Kessler, chairman, president and CEO of Lorillard, will join RAI’s board after the closing of the transaction.

“Reynolds American and Lorillard have complementary core strengths and the addition of Newport to our operating companies’ existing brand portfolios will enhance our ability to compete in the combustible cigarette and smokeless categories,” said Cameron. “We are also confident in R.J. Reynolds Vapor Co.’s digital vapor cigarette Vuse, which offers superior technology and has received very positive early results in its national rollout. This transaction will provide RAI with additional resources to invest in innovation, R&D and its operating companies’ brands.”

“We are proud of Lorillard’s record of shareholder value creation and operational success, and we view this transaction, which provides a significant premium to our shareholders, as the culmination of our efforts,” said Kessler.

“We are confident in the strategic and financial merits of these transactions,” said Nicandro Durante, CEO of BAT. “Additionally, we find the long-term prospects of this combination compelling, which is why we are making an additional investment in Reynolds American.”

Second global nicotine forum scheduled

| July 15, 2014

The organizers of the recently held Global Forum on Nicotine have announced that they will stage another such event in a year’s time.

The second Global Forum on Nicotine is scheduled to take place at the Marriott Hotel, Warsaw, on June 5–6, 2015.

The first GFN, which attracted about 200 people from 30 countries, was organized by U.K.-based Knowledge-Action-Change, whose co-director, Gerry Stimson, is professor emeritus at the London School of Tropical Medicine and Hygiene.

It was held on June 27–28, also at the Marriott Hotel, Warsaw, where participants included scientists, researchers, representatives of tobacco- and e-cigarette manufacturers, vaper activists, at least one politician and tobacco control advocates.

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