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Tobacco News
BAT: Modest tax increase will counter contraband cigarettes
  By: Pauline S.C. Ng
Source: The Star (my), 2002-04-18, via tobacco.org

Having been hit by fairly hefty tax increases in the last two federal budgets, British American Tobacco (Malaysia) Bhd (BAT) is waiting with bated breath for what the next Budget may bring.

It hopes a tax increase on tobacco products, if any, would be "modest''.

Otherwise, the smuggling of contraband cigarettes was bound to increase, BAT managing director Stuart Watterton warned.

Speaking at a press conference after the company AGM in Petaling Jaya yesterday, he said contraband cigarettes accounted for about 22% of all cigarette sales in the country.

Following the 20% increase in excise and import duties on tobacco products in the last Budget, BAT raised cigarette prices to offset the increase in duties. And for its year ended Dec 31, 2001, the company managed a near 20% growth in pre-tax profit to RM840.3mil.

"The credit goes to management for handling challenging events,'' chairman Tan Sri Abu Talib Othman said of BAT's better showing last year despite the duty increases.

Last year, domestic sales of cigarettes dropped 3.5% over 2000.

And so far this year, Watterton estimates, it is down 1%-2% over  2001.

He said the industry's performance this year, as well as BAT's the company has a whopping 70% share of the local cigarette market would depend on three factors: the economy; whether taxes on tobacco products would be raised, and if so, the extent of the increase; and whether there would be a jump in contraband activities.

Watterton said BAT was not against an increase in duties. "But we try to explain to the government how the mechanics of the industry work," he said.

"We would rather have modest increases, so that the market isn't disrupted,'' he said.

On changes to advertising strategies following the introduction of the International Tobacco Products Marketing Standards, Watterton said there would be "less overt advertising'' of its products, but more focus on point-of-sale and sales force efforts, and developing relationships with the company's customers.


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