Increase in taxes reflected by fivefold rise in tobacco prices

Phillip Morris becomes the first company to announce a big price hike in cigarettes after a government decision to increase the special consumption tax on tobacco over the weekend. Japan Tobacco and British American Tobacco have followed. The hike is excessive, says a tobacco organization while a consumers’ association reacts
Price hikes cause more tobacco products to be sold over the black market. DAILY NEWS photo, Hasan ALTINIŞIK

Price hikes cause more tobacco products to be sold over the black market. DAILY NEWS photo, Hasan ALTINIŞIK

Tobacco companies active in Turkey have taken advantage of a new tax regime to hike prices on their products by more than five times the actual raise in tax per one packet of cigarettes.

Tobacco producer Philip Morris/Sabancı announced yesterday an increase in retail prices of their products, with rises ranging between 28 and 44 percent over previous prices, according to a company statement yesterday. With the changes, the price of a cigarette pack costing seven Turkish Liras is now nine liras, while a pack that previously cost 4.5 liras will now be 6.5 liras. All products sold by the company in the Turkish market increased by at least two liras over previous prices. The company has raised its prices by two liras on the packages that used to cost seven liras, although the new regime is only increasing taxes on the product by just over 40 kuruş.

Other tobacco companies, such as Japan Tobacco International and British American Tobacco, also increased the prices of their products by two liras, according to a report by daily Hürriyet.

“The [firms’ final] price hike is excessive,” Orhan Akyol, the chairman of the Tobacco Producers’ Union, said yesterday. Akyol suggested the normal increase in prices should have been between 0.50 and 0.70 liras. Noting that most tobacco producers refused to become members of the union and thus behave in an organized way to the market, Akyol said, “As tobacco producers are not organized, they play with prices [according to their own interests].”

The tobacco sector’s income has decreased from 1.52 to 1.42 liras based on the new re-distribution of the tax share, a professional close to the issue told the Hürriyet Daily News in a phone interview yesterday.

Companies, as well as state authorities, apply arbitrary increases in taxes and the prices of products because Turkish consumers show little reaction toward such trends, Aysel Can Ekşi, the deputy head of the Consumers’ Protection Association, told the Daily News on a phone interview.

The Turkish government increased taxes on alcoholic drinks, tobacco products, mobile phones and cars through a special consumption tax (SCT). The SCT rate on cigarettes rose from 63 percent to 69 percent, according to a ruling published in the Official Gazette on Oct. 12.

A flat tax on beer rose to 0.53 liras per liter from 0.44 liras, and to 19.82 liras per liter for sparkling wines from 16.12 liras. SCT on mobile phones also increased.

The SCT rose for all non-electric passenger cars with engines larger than 1.6 liters at rates of between 15 percent and 130 percent.

Prime Minister Recep Tayyip Erdoğan said Oct. 15 that citizens should drive less gas-consuming vehicles like Fiats or Volkswagens instead of luxurious ones with over 2000CC engines, such as Porsches, to cut spending.

Porsche Turkey General Manager Anıl Gürsoy said they “welcomed the PM’s remarks respectfully,” according to a Hürriyet report yesterday. “[The PM] is suggesting that each consumer should make expenditures in accordance with their income levels,” he said.

Meanwhile, many luxury automobile brands, such as BMW 316i, Citroen C5, Ford Mondeo, Opel Insignia, Peugeot 508 and others said the recent SCT increase would not be reflected in their car prices, the Ajansotomobil.com website said yesterday.

Update is not a price hike, Şimşek Says

Turkey’s Consumers Protection Association (TÜKODER) has reacted against a new terminology by Finance Minister Mehmet Þimþek to define what was once called a hike in prices.

While announcing a sharp rise in special consumption tax on Oct. 13, Þimþek said, “I would not like you to consider this rise as a price increase but an update.” He added that the government expected an annual 5.5 billion Turkish Liras of additional revenue because of the “update.”

“The minister seems to be mocking the citizens,” Aysel Can Ekþi, deputy head of TÜKODER, told the Hürriyet Daily News in a phone interview yesterday.

The updated rate that the minister pronounced for 2012 was 10.2, which is far above the government’s inflation target of 5.3 percent for the same year.

Once approved by the Cabinet, the rate will be implied to several government revenues, including all taxes, fines and charges, which will result in an increase without requiring a further notice or decision.

Monday, October 17, 2011
ISTANBUL- Hürriyet Daily News