Tobacco Asia

14 tobaccoasia FRONT PAGE NEWS 卷首新闻 New Cigarette Tax Sinks Stocks Indian tobacco stocks sold off sharply on January 1 after the government announced a higher excise duty on cigarettes, a move expected to raise prices for roughly 100 million smokers in the country. ITC, India's largest cigarette maker and the producer of brands such as Gold Flake and Classic, fell as much as 9.2%. Godfrey Phillips India, which distributes Marlboro and Four Square domestically, dropped up to 14.1%. ITC shares slid to INR365.50 (US$4.05/US$1 = INR 90), their lowest level since April 2023, and headed for their worst single‑day performance in nearly 6 years. Godfrey Phillips recorded its steepest decline since November 2016. ITC led losses on the Nifty 50 index and weighed heavily on the FMCG index, which traded about 3.2% lower. Trading volumes in both stocks exceeded 20 times their 3‑month average, underscoring the scale of investor reaction. Late on December 31, India's finance ministry notified a new excise duty ranging from INR2,050 to INR8,500 per 1,000 cigarettes, depending on length, effective February 1. The levy applies in addition to the existing 40% goods and services tax on cigarettes and other tobacco products. Jefferies analysts described the decision as "a clear negative," warning that higher taxes could hurt sales volumes and revive concerns about consumers shifting to illicit cigarettes. "While we are still unsure on the final outcome, if confirmed, this will be a clear negative as volumes will be impacted and concerns would also re‑emerge on risk of losing some volumes to illicit industry," analysts led by Vivek Maheshwari wrote. Analysts at ICICI Securities estimated that the duty translates into a 22%–28% increase in overall costs for cigarettes measuring 75–85 millimeters. "Cigarettes longer than 75 mm account for roughly 16% of ITC's volumes and are likely to see price increases of INR2–INR3 per stick as a result of the levy," they said. Jefferies added that the revised charges could imply a tax increase of more than 30% if the National Calamity Contin‑ gent Duty remains in place. Analysts said ITC may need to raise prices by "at least 15%" to offset the impact. Australia's Tobacco Tax Collapse Australia may collect little to no revenue from tobacco excise in the coming years as illegal tobacco continues to undercut legal sales, according to a former senior Australian Border Force official, reports Financial Review. A mid‑year budget update released in December showed another sharp downgrade in expected tobacco tax receipts. Treasury now projects revenue of A$22.3 billion (US$14.94 billion/ US$1.00=A$0.67) over the 4 years to 2028, down from A$44.9 billion forecast just 2 years ago. Rohan Pike, former head of the Australian Border Force's tobacco strike force, called the figures "alarming" and said they exposed persistent failures in official forecasting. "The momentum is downward, and it's just a matter of how quickly we get to ground zero," Pike said. "It's going to be a negligible number in the years to come." Economist Chris Richardson described the situation as a major policy misstep. "This may be the biggest unforced error in Australian economic policy in a very, very long time," he said. "We are seeing the death of the legal tobacco market in Australia. Treasury isn't quite playing the last post yet, but it's not far from it." Treasurer Jim Chalmers rejected calls to cut tobacco excise to draw smokers back to legal products, an idea promoted by tobacco companies and other groups. "We don't believe a tobacco tax cut, as British American Tobacco and some others have proposed to us, will fix the problem," Chalmers said. Cigarette taxes have risen by 300% since 2010, but the expansion of the black market means only about half of all cigarettes sold now attract tax. Treasury reduced its revenue forecast by A$1.6 billion for the 2026 financial year and by A$8.2 billion through 2028–29. Tobacco excise revenue peaked at A$16.3 billion in 2019–20 and has since dropped 73%. Pike said smokers still paying roughly A$5 billion a year in tobacco tax remained loyal to legal brands, but growing numbers switched to far cheaper illegal products. NSW Police deputy commissioner David Hudson told a state inquiry that repeated tax hikes had fueled illicit trade growth. Chalmers said the government allocated A$350 million to strengthen tobacco compliance, largely supporting Border Force operations. Authorities carried out 9 compliance checks a day last year, issuing 1,752 infringement notices and A$27.6 million in fines. Richardson warned the government faced a narrow window to act before the illegal market became deeply entrenched. KT&G Revises PMI Deal KT&G filed a corrective disclosure on December 12 through South Korea's DART system, updating key terms in its 15‑year long‑term partnership with Philip Morris International (PMI), according to Newsis. The revised filing shows that KT&G will secure overseas commercialization rights for several heated tobacco technology platforms. The update also confirms the conclusion of the previous minimum guaranteed sales volume cycle for lil-exclu‑ sive heated tobacco sticks, which covered the period from 2023 through 2025 and began at 16 billion units. KT&G said a new minimum guaranteed volume cycle will run from 2026 through 2028, with the starting threshold set at 11 billion units. The company added that the overall stability of the contract remains intact despite the adjustments. Australia's illicit cigarette trade is eroding legal sales while depriving the government of billions in tobacco excise revenue. Credit: ABF.

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