Issue link: http://read.dmtmag.com/i/550313
28 tobaccoasia pines, and Malaysia. These cigarettes are imported into the country legally, but do not pay the pro- vincial taxes that TTM is required to pay for its cigarettes to be allowed to be sold in the country's provinces. No provincial tax means lower costs, which means lower sales prices to the consumer, which, in turn, means market dilution for TTM. "Also considered as competition are producers of rolling tobacco," said Dr. Suttiniphapunt. "Our consumers are mainly in the middle to grassroots markets. During times of a bad economy or during the recent political turmoil, our consumers turn to more affordable options such as rolling tobacco. We cannot compete with the rolling tobacco cur- rently available in the market as our tobacco has higher costs, due to the fact that we offer extra incentives to the tobacco farmers who grow high- quality tobacco that meets our standards," she said. The biggest challenge for TTM, though, seems to be Thailand's strict regulations on advertising and marketing tobacco products, banning any advertising and overt marketing of tobacco prod- ucts, and the new law on packaging that came into effect in June 2014. Under the new law, ciga- rette packs in Thailand will be 85% covered with graphic health warnings and a quit smoking hot- line telephone number. A transition grace period was allowed when the law first came into effect, but from September 22 onwards, the law will be strictly enforced. The implementation of this new law has caused TTM's distributors to hold-off new orders as any distributor caught selling cigarette packs without the 85% graphic warning on or after September 22 will be persecuted. This has affected TTM's inventory and production process. VIETNAM Ranked in the world's 15 top consumers of tobac- co with more than 15 million smokers, Vietnam is one of the more smoker-friendly countries out there. Vietnam's Health Strategy and Policy Insti- tute recently conducted a survey and found that Vietnamese people spend about VND22 trillion (US$1.038 billion) a year on tobacco. Smoking has been estimated to cost Vietnam VND23 tril- lion annually in health treatment and lower labor capacity. In an effort to address these issues, the Viet- namese government passed the Law on Prevention and Control of Tobacco Harms, which came into effect on May 1, 2013. Among other regulations, the law bans smoking in certain public places, the sale of cigarettes to minors, and any advertising of tobacco products. It also requires all cigarette packs to feature graphic health warnings on half the surface of the pack. Compliance deadlines were November 2013 for soft packs and March 2014 for hard packs. Similar to Thailand, these new regulations have hit Vietnam's tobacco indus- try hard. Aside from the obvious complications, it would seem that Vietnam's tobacco industry is struggling with dealers violating the law and sell- ing cigarette packs that were manufactured earlier without warnings or just with warning slogans. Consumers are evading buying the new packs and are willing to pay more for older cigarettes without the graphic warnings. Tobacco production has also seen a drop due to the circulation of these older cigarette packs. In the first three months of this year, tobacco production dropped by 9%, com- pared to the same period last year, resulting in a reduction of VND2 trillion in tax revenue. In addition, Vietnam's Ministry of Finance has proposed to increase tobacco tax from the current 65% to 75% in 2015, and 85% in 2018, in hopes that this will help reduce the number of smokers. The Ministry of Health has taken the matter even further, proposing a stronger tax increase plan on tobacco in which the excise tax for tobacco should be increased to 105% in 2015, and to 145% in 2018. Taxes are expected to be adjusted again in 2020. The Ministry of Health has projected that, if the stronger tax increases come into effect, the number of smokers in Vietnam will drop from 47.4% (recorded in 2011) to 39% in 2020. Tobacco taxes are expected to increase to VND9 trillion in 2015 and VND24.1 by 2018. Another challenge Vietnam's tobacco industry faces is cigarette smuggling, which increased even more since the new regulations came into effect last year. According to the Vietnam National To- bacco Corporation (Vinataba), the country's lead- ing tobacco manufacturer with more than 50% of the market share, smuggled cigarettes now account for more than 20% of the market. In the first five months of this year, officials prevented 1,700 vio- lations of smuggled and fake tobacco and seized nearly 600,000 cigarette packs. Vietnam's Ministry of Industry and Trade's Market Watch Depart- ment revealed that over 6.8 million packs of ille- gally imported tobacco were seized during 2013 and in the first quarter of 2014 combined. However, despite the challenges encountered with the new regulations coming into effect and the possibility of a future tax hike, Vietnam's to- bacco industry seems to still be in good shape. Figures obtained from Vinataba show that in 2013 sales volume was at 112 billion sticks, 6.8 % higher than the previous year. Export volume increased by nearly 14%, compared to 2012, at 24.5 billion sticks. While current figures for 2014 have shown a slight decrease in sales volume, Vinataba expects that it will meet this year's projection figures.