Mexico tobacco tax rise seen aiding black market
MONTERREY, Mexico, Dec 20 (Reuters) - Higher taxes on Mexican cigarettes could mean smokers will have to pay up to 10 percent more next year, an increase that could boost contraband sales, the country's tobacco industry said Monday.
Mexican legislators decided last week to increase special taxes on cigarettes to 100 percent for the next fiscal year, up from 85 percent previously.
The resulting price increase "could be of up to 10 percent, said Mauricio Santos, vice president of the National Council of the Tobacco Industry.
The higher cigarette tax ``will leave Mexican producers unable to compete with international prices,'' he said, noting the industry expects a sharp increase in sales of black-market cigarettes, which sell for up to 40 percent less.
Santos said contraband cigarettes were smuggled into Mexico from Russia, Europe, South America and the United States.
``Consumption is going to stay the same. The problem is that Mexican cigarettes are losing market (to the black market),'' he said.
The Mexican cigarette industry is dominated by La Moderna, a subsidiary of British American Tobacco Plc and Cigatam, a joint venture of Grupo Carso and Philip Morris Cos. Inc.
Afin Securities estimated in its latest report that Cigatam's profit margins would drop by 2.5 percentage points, to 17.5 percent, if it did not increase prices as a result of the higher tax.
``We believe the company will increase prices in the near future to compensate the effect (of the higher tax) on margins,'' it said.