Argentine cigarette makers warn on higher taxes (fwd)

[Robert Weissman <rob@essential.org>]

Argentine cigarette makers warn on higher taxes
Source: Reuters, Monday, 12/20/99

Monday December 20, 3:37 pm Eastern Time

BUENOS AIRES, Dec 20 (Reuters) - Argentina's cigarette producers Monday
warned that a tax hike planned by the new government could lead to plant
closures and increased smuggling.

The lower chamber of Congress last week passed a controversial tax package
which included an increase in the tax on cigarettes to 21 percent from the
current 7 percent. The bill now goes to the Senate.

Jorge Vives, head of Argentina's Tobacco Industry Chamber, told Reuters
that if passed, the tax hike would ``lead to plant closures in the
interior of the country.''

Vives is also executive vice president of Massalin Particulares , a
subsidiary of Philip Morris (NYSE:MO - news).

The chamber also includes Nobleza Piccardo , a unit of British American
Tobacco Industries Plc (quote from Yahoo! UK & Ireland: BATS.L). Massalin
and Nobleza are Argentina's only cigarette producers.

President Fernando de la Rua, who took office earlier this month, proposed
the tax hike to rein in the fiscal deficit to $4.5 billion next year from
a projected $6.2 billion.

Private economists have also said the planned tax hike would hurt
consumption and could delay any recovery in the country's worst recession
this decade. Joblessness is currently at 13.8 percent.

Vives said the increase would raise taxes on the price of cigarettes to
72.5 percent of the total price from 68 percent, and may force the closure
of Massalin's Goya plant in the poor northern province of Corrientes. That
factory employs 500 workers.

``The Goya plant would become non-viable in the new fiscal scenario,'' he
said.

Massalin accounts for nearly 3,000 of Argentina's 4,000 cigarette workers.
The company has two other plants in the country. After tougher tax
conditions in 1991, it closed a plant of nearly 1,000 workers.

Vives said higher taxes would also mean less revenue for 150,000 cigarette
distributors, and increased smuggling which he said accounts for 12
percent of all cigarettes sold in Argentina.

Cigarettes are smuggled in primarily from Paraguay and other neighbouring
countries and could grow to become 35 percent of the market, as in Brazil,
he said. He added that smuggling has cost the Argentine state over $230
million in lost tax revenue this year.

Tobacco accounts for $2.0 billion in fiscal revenue a year.

Massalin earned $48.8 million in the first half while Nobleza earned $12.5
million in the first nine months.