Mexican cigarette firms protest new tax (fwd)

[Robert Weissman <rob@essential.org>]

Mexican cigarette firms protest new tax
Thursday December 16, 4:51 pm Eastern Time

MONTERREY, Mexico, Dec 16 (Reuters) - Mexico's tobacco industry is
``studying all means available'' to try to halt a 100 percent cigarette
tax approved by Congress, saying the current 85 percent tax is the highest
on any product in Mexico.

The Mexican Congress added the new tax into President Ernesto Zedillo's
year 2000 budget, which is expected to receive final approval in a special
session of Congress next week.

The hike was designed to reduce smoking in Mexico, where a pack of
cigarettes costs a little over $1 and where there are very few
restrictions on smoking in public places.

But the National Council of the Tobacco Industry (Conainta) said late on
Wednesday it would do all it can to prevent an increase in the sin tax
known by its Spanish acronym IEPS.

Mexico's $1.3 billion a year cigarette market is dominated by a duopoly of
La Moderna, a unit of British American Tobacco

(quote from Yahoo! UK & Ireland: BATS.L), and Cigatam, a joint venture
between Mexican industrial conglomerate Grupo Carso and Philip Morris
(NYSE:MO - news).

``In 1999, it is expected that through IEPS the industry will pay
approximately 6.2 billion pesos (about $662 million) and by the end of
2000 it is estimated to reach 7.1 billion pesos ($758 million) even
without the new increase, a rise of 15 percent,'' the council said in a
statement.

Council president Francisco Espinosa said in the statement that the tax
would not reduce smoking and only increase prices on a product in Mexico's
inflation index while promoting the sale of black-market cigarettes.

Conainta said the new tax would hit the industry just as it has invested
more than 22 billion pesos ($2.35 billion) over the past two years on
improvements in production and distribution.

Tobacco growers as well have protested the tax, saying black-market sales
would soar and small farmers would pay the price.

``Every percentage point increase in the IEPS means 150 hectares less of
tobacco planted,'' Ramon Iriarte, president of the National Agricultural
Council, told Reuters on Wednesday.

``Contraband cigarettes account for 10 or 12 percent of the market today,
and with this increase it will rise to 25 or 30 percent,'' he said.