Sunday,22 July, 2018
Current issue | Issue 1183, (6 - 12 February 2014)
Sunday,22 July, 2018
Issue 1183, (6 - 12 February 2014)

Ahram Weekly

Puffing away the profits

The ministry of finance has decided on cross-the-board increases in cigarette prices, reports Sherine Abdel Razek

Al-Ahram Weekly

The increase in cigarette prices announced by the ministry of finance this week pushes the price of the most popular local brand, Cleopatra, to LE6 per pack and the price of the most expensive, Parliament, made by the American tobacco company Philip Morris, to LE19.

Meanwhile, the price of a pack of other Philip Morris cigarettes like Marlboro and Merit, as well as Kent and Dunhill, produced according to an agreement with British American Tobacco, increased to LE17.

Mohamed Zein, a senior analyst at City Capital, an investment bank, said that the increase in prices would not be felt by the end customer who has been buying cigarettes at these prices for some time.

He said that a survey by the ministry of finance had revealed that retailers sell both local and foreign brands at prices higher than those set by the manufacturers. Estimates put the value of such illegal profits at LE3 billion. “Retailers’ profits should not exceed 3-5 per cent of the value of the pack, but this has not historically been the case,” Zein said.

The head of the Eastern Tobacco Company, the maker of the Cleopatra brand, put the revenues from the increase at LE2-3 billion, pushing total government revenues from cigarettes to around LE22 billion.

If the increases were applied to the Cleopatra brand, he said, this would mean that the government levied taxes of LE1.25 plus 50 per cent of the value of a pack in addition to 10 piastres representing health insurance fees. This mean that for every LE6 pack of Cleopatra cigarettes the government pocketed LE4.85.

The increase in cigarette prices is the first since 2011-2012, Zein said, and the ministry of finance announcement said that retailers selling cigarettes at higher prices would now face legal action as they could be considered to be evading sales taxes.

Eastern Tobacco, Egypt’s sole producer of cigarettes, sold 79 billion cigarettes in 2012/2013, with the local brand Cleopatra cornering the lion’s share of sales with 56 billion cigarettes sold.

The sales of the company, and thus the tax revenues, have been affected during recent years as a result of the smuggling of cigarettes.

As a result of the present lack of security in Egypt, smuggled cigarettes from China, Jordan, and the UAE have been competing with local brands, grasping almost 15 per cent of market share. With more than 100 low-cost illicit brands now selling at LE3-5 per pack, Eastern, whose cheapest brand is sold at LE5.5, has faced fierce competition.

However, the amount of smuggled cigarettes has decreased since the government cracked down on the tunnels linking Egypt to Gaza, the origin of most smuggled cigarettes.

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