CIGGIE PRICES LIKELY TO INCREASE AGAIN
Analysts say price reduction by tobacco firms, despite 10pc sales tax, only interim
CIGARETTE prices may increase again eventhough tobacco companies are seemingly engaged in a price war by ignoring a Sales and Services Tax (SST) requirement.
Cigarette makers have reduced their prices, despite the 10 per cent SST imposed on them from September 1, but analysts believe this is only an interim measure.
Key players, namely British American Tobacco (Malaysia) Bhd, JT International Bhd (JTI) and Philip Morris (Malaysia) Sdn Bhd, have reduced their product prices and even rolled them back to pre-SST level.
BAT has reportedly reverted prices to pre-SST levels, with its premium brands now costing RM17 compared with RM17.50 briefly after the SST came into effect. Pall Mall and Rothmans packs have been reduced to RM15.50 and RM12 each, from RM16 and RM12.50, respectively.
JTI has reduced prices of its LD by 20 sen to RM11.80, although prices of its premium brands — Mevius and Winston — remain unchanged at RM17.50 and RM16, respectively.
Analysts expect prices to increase again once the government provides clarity on the implementation of the SST on cigarette makers.
“Tobacco companies have been losing their power to increase market share, given the higher number of illicit cigarettes in Malaysia every year,” Putra Business School senior lecturer Dr Ahmed Razman Abdul Latiff said.
“The companies used the lack of clarity in the new tax system as an excuse to reduce prices.
“We expect the prices to be higher as after the SST was implemented on September 1. This situation will be similar to when the Goods and Services Tax (GST) was introduced,” said Ahmed Razman.
Meanwhile, JTI said there were differences in prices set by tobacco manufacturers and this had triggered pricing dynamic not seen in Malaysia for many years.
It said cigarette prices, by law, should have increased following the implementation of SST.
“In Malaysia, change in cigarette pricing is subjected to regulatory approval from the Health Ministry. With regards to a tax-driven increase, it is illegal for tobacco manufacturers to absorb any quantum of the increase,” said JTI Malaysia managing director Cormac O’Rourke in a statement yesterday.
JTI said the ministry’s inaction had led to a price war among tobacco companies in Malaysia.
The company thus wants more clarity on the SST implementation on cigarettes.
“When the GST was zero-rated on June 1, the health and finance ministries issued statements that tobacco companies were prevented from reducing prices equivalent to the six per cent GST imposed on the product,” said O’Rourke.
Analysts said the price war had stemmed from key players’ eagerness to maintain their market share and sales volume, which was heavily dominated by illicit players.
The challenge posed by illicit traders might decrease if the government kept its pledge to stop the smuggling of cigarettes across borders, they added.
With the price war, the analysts said tobacco companies should record better sales volume than when they hiked their prices after the SST was enforced.
Tobacco companies have been losing their power to increase market share, given the higher number of illicit cigarettes in Malaysia every year.
Putra Business School senior lecturer