Huge tax hikes are damaging the tobacco industry by limiting how many cigarettes the world’s leading tobacco companies are selling.
Leading tobacco companies, such as British American Tobacco, Phillip Morris International and Imperial Brands have seen recent growth stunted by difficult conditions in new markets.
A current trend associated with new market economies is to hammer taxes on the tobacco industry in order to raise funds for treasuries, which has harmed cigarette output.
Brazil, the Philippines, Pakistan and Malaysia are just some of the countries whose government has increased tax on tobacco, according to tobacco analyst Owen Bennett at brokerage Jefferies.
“When you see emerging market volume decline more significantly, it is largely driven by excessive tax increases,” says Bennett.
More often than not, the tax hikes in emerging markets that are putting a brake on tobacco growth cigarettes pushes users to the black market due to rising cigarette prices, strengthening the illicit tobacco trade, and punishing the legal tobacco industry.
Bennett explained that governments try to use cigarette tax hikes to spend in other areas, many of the aforementioned nations did not have the necessary resources to stamp out illicit tobacco.
“Between 2001-08, if you had emerging market exposure it was an advantage with volumes rising 2pc a year,” he said.
“But now, non-OECD countries are seeing volumes down 2.9pc meaning emerging markets are not the panacea of growth they once were.”
And it’s not just tax hikes plaguing the tobacco industry, with tobacco giants losing their plain packaging legal battle, following the Tobacco Products Directive.
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