The price wars in the tobacco industry are unraveling as Phillip Morris, parent company of Chesterfield and Marlboro, raises alarms for the Spanish government.
Officials are considering revising its tax policy in order to stop companies from cutting their prices. This year the minister of Hacienda had expected to collect 780 million euros through special taxes on tobacco, but lower sales have resulted in only 160 million collected.
Now with price wars in full swing, treasury deposits are plummeting. The government seems ready to take measures, but it still isn´t clear what taxes they would modify.
80% of each pack of cigarettes currently goes to Hacienda´s coffers, but there are other taxes applied to each pack. In addition to the VAT (18%), there are two extra taxes: another value-added tax equal to 57% of the final price per pack and a flat rate 25 cents per pack.
Five years ago, after addressing the last price war, a fixed tax of 117 euros for every thousand cigarettes was approved, or approximately 2.34 euros per pack. If a store decides to cut prices on packs adds up all the special taxes, it won´t reach this amount, so a minimum is applied.
Consider the losses
In theory, it would be impossible to sell a pack of cigarettes for less than 3.66 euros considering that one has to pay these taxes and an additional 8% commission to the tobacco vendors. But in practice, it is being done. In fact, there are brands like Fortuna, Chesterfield, Winston and Lucky Strike who are selling at 3.5 euros a pack. Others in a lower price band. L&M and Pall Mall are already going for 3.3 euros.
Edited in English by Brandon Dyches and Jose L. de Haro (for comments contact: joseluisdeharo@eleconomista.es)
