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Tax hike drives tobacco firms into corner

YANGSAN, South Gyeongsang Province ― Philip Morris Korea suffered a sales drop of nearly 18 percent in the first quarter, year-on-year because of a hike in tobacco prices driven by the government’s cigarette tax increase of 2,000 won ($1.85) in January.

The company’s domestic sales are expected to decline further as the number of smokers falls because of the government’s anti-smoking measures and, in the long run, low birth rates.

Against the odds, the Korean unit of the multinational cigarette maker is trying to secure sustainable growth. And one way of doing this is by increasing exports.

“We are trying hard to increase exports (of cigarettes produced in Korea) to make up for domestic losses,” Kim Byung-cheol, director of Philip Morris Korea, told reporters at the firm’s factory. “Our products were proven to be competitive internationally.”

The company exported 4.5 billion cigarettes to Australia, Japan, Hong Kong, Taiwan and several other countries last year. It aims to ship 10 billion this year.

“We are trying to expand in the Asian market,” Kim said. “And things are progressing smoothly.” But he did not give details.

Kim said the company would try to rebound in the local market by developing new products that met the taste of Korean smokers. The launch of Marlboro Zing Fusion in early April was the latest move, he said.

He said that the company was considering developing new products with tobacco leaves harvested in Korea.

“We want to make a bigger contribution to the tobacco industry,” Kim said.

Asked about the cigarette tax hike, he said the policy had created various side effects that challenged tobacco companies’ bottom lines as well as public health.

“The tax hike has led to a steep increase in smuggling of low-priced foreign cigarettes into the nation,” Kim said. “There are many other side effects caused by the sudden and steep tax increase. The government should have increased the tax gradually, in proportion with the growth of gross domestic product.”

Philip Morris Korea’s sales last year were estimated at 703 billion won, with 188 billion won in operating profit.

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