Spain increases tobacco taxes again, Altadis leaps
MADRID, Feb 10 (Reuters) - Spain raised tobacco taxes for a second time in a month on Friday and also introduced a minimum tax aimed at putting a brake on sales of cheap brands.
The government increased cigarette taxes in January but the main manufacturers selling in Spain -- Altadis, Philip Morris and Japan Tobacco -- responded by cutting prices to fight off competition form cheap, lesser known brands.
Friday's increase raises the tax on tobacco as a percentage of value by 1.05 percentage points to 57 percent.
The tax on volume, which affects cheap brands proportionally more, increases by 2 euros to 8.20 euros ($9.82) per 1,000 cigarettes.
"These two measures attempt to put a brake on the price cuts applied in the last few weeks by the main brands in our market," the government said in its notes from the weekly cabinet meeting, where the move was approved.
There is also a new minimum tax level of 55 euros per 1,000 cigarettes, which comes into force if the combined burden of the value and volume taxes works out at less than that amount.
"This measure aims to make the cheap brands raise their prices, an objective that was not achieved with the previous tax increases," the government said.
"This ensures that all cigarettes in the market bear a tax charge of at least 1.10 euros a pack," it added.
Shares in French-Spanish tobacco company Altadis gained 3 percent on the news and at 1630 GMT were still up 1.1 percent at 37.43 euros while the main Ibex index was 0.13 percent lower.
ALTADIS LOSES MARKET SHARE
Altadis has lost market share to cheap brands in recent years and has seen its top brand fall from the number one slot.
In 2005 its best-selling Fortuna brand was beaten by Philip Morris's Marlboro which won almost 17 percent of the market compared with Fortuna's 15 percent, figures from the Tobacco Commission show. Philip Morris's Chesterfield was number three with a market shares of almost 11 percent.
The three have lost out to cheap brands which all the manufacturers are offering in a bid to win market share. A pack of Altadis' Denim now costs only 1.30 euros, while British American Tobacco sells Golden American for 1.50 euros.
The top brands, even after the round of price cuts, are around 2.0 euros for a pack of 20. Altadis initially raised its prices to compensate for the January tax hike, but it reversed that when Philip Morris said it was cutting its rates. Japan Tobacco which owns international rights to R.J. Reynolds brands like Camel and Winston, cut its prices last Saturday.
"This measure will curb the phenomenon of cheap brands in Spain," said Ignacio Mendez, analyst at broker Venture Finanzas. Mendez estimates budget brands will have to raise their prices to at least 1.65 euros a pack from 1 euro.
"It's too soon to know what the increase will mean for Altadis. It all depends on what Altria does," he said, referring to Philip Morris' parent company.
The tax hikes follow tougher anti-smoking rules introduced in January banning the habit in the workplace and obliging Spain's thousands of small bars and restaurants to choose between allowing or prohibiting smoking.
While larger restaurants have to separate smokers and non-smokers, the smaller ones have opted overwhelmingly to allow tobacco. The Health Ministry has threatened further action.
Spain is one of the more attractive European markets for tobacco firms with the second highest per capita consumption after Greece.