BAT calls for 3-year moratorium on tobacco excise duty hikes

KUALA LUMPUR: British American Tobacco (Malaysia) Bhd said the industry needs at least a three-year moratorium on further excise duty increases, to allow the market to stabilise.
"That's what we recommend. If there is a further excise duty increase, it will be a lose-lose (situation) for the industry and the government," its managing director Stefano Clini told a press conference after its AGM yesterday.
"As far as we are concerned, after the 40% excise hike in November last year, the excise income of the government has gone down," he added.
For the financial year ended Dec 31, 2015 (FY15), the group's revenue declined 4.5% to RM4.58 billion, from RM4.8 billion in FY14, as the group's domestic volumes shrank 13.5%, due mainly to the impact of the excise duty increase. In FY15, BAT's market share grew 0.9 percentage point to 62.1%.
Clini said against the backdrop of economic conditions coupled with three consecutive high tax increases since 2013 – and the last straw in November last year – the illegal cigarette trade has escalated drastically.
"Consequently, the legal volumes last year plummeted and we continued to suffer," he said.
Asked on the group's direction after closing its production plant here, Clini said it will be sourcing tobacco products for the domestic market from other BAT factories regionally, including Singapore, South Korea and Indonesia.
"We are still assessing which (factories) to source the products for the Malaysian market," he added, stressing that the group has no plans to exit the local stock market despite the plant closure.
Clini reiterated that the group's decision to close down its facility here is not a sign of protest against the government's excise duty policy but is part of its cost optimisation plans.
"We do this because it is the right thing to do, to create better value for the shareholders. They (shareholders) are taking it quite well because we are going to have products with the same quality, offer the same kind of service to the consumer at lower cost," he said.
Commenting on the industry's outlook, Clini said he expects the share of illegal cigarettes to grow rapidly in the event of further tax increases, and if no urgent efforts are taken to address the illegal segment. He said the group will continue to invest to strengthen its portfolio and build a sustainable business model within a more demanding operating environment to deliver shareholder value.
BAT shares closed 0.4% or 22 sen higher at RM54.72 yesterday, with some 176,400 shares traded.