Mexican cigaratte firms protest new tax
MONTERREY, Mexico, Dec 16 (Reuters) - Mexico's tobacco industry is ``studying all means available'' to try to halt a 100 percent cigarette tax approved by Congress, saying the current 85 percent tax is the highest on any product in Mexico.
The Mexican Congress added the new tax into President Ernesto Zedillo's year 2000 budget, which is expected to receive final approval in a special session of Congress next week.
The hike was designed to reduce smoking in Mexico, where a pack of cigarettes costs a little over $1 and where there are very few restrictions on smoking in public places.
But the National Council of the Tobacco Industry (Conainta) said late on Wednesday it would do all it can to prevent an increase in the sin tax known by its Spanish acronym IEPS.
Mexico's $1.3 billion a year cigarette market is dominated by a duopoly of La Moderna, a unit of British American Tobacco
(quote from Yahoo! UK & Ireland: BATS.L), and Cigatam, a joint venture between Mexican industrial conglomerate Grupo Carso and Philip Morris (NYSE:MO - news).
``In 1999, it is expected that through IEPS the industry will pay approximately 6.2 billion pesos (about $662 million) and by the end of 2000 it is estimated to reach 7.1 billion pesos ($758 million) even without the new increase, a rise of 15 percent,'' the council said in a statement.
Council president Francisco Espinosa said in the statement that the tax would not reduce smoking and only increase prices on a product in Mexico's inflation index while promoting the sale of black-market cigarettes.
Conainta said the new tax would hit the industry just as it has invested more than 22 billion pesos ($2.35 billion) over the past two years on improvements in production and distribution.
Tobacco growers as well have protested the tax, saying black-market sales would soar and small farmers would pay the price.
``Every percentage point increase in the IEPS means 150 hectares less of tobacco planted,'' Ramon Iriarte, president of the National Agricultural Council, told Reuters on Wednesday.
``Contraband cigarettes account for 10 or 12 percent of the market today, and with this increase it will rise to 25 or 30 percent,'' he said.