Turkey tax increases seen adding to 2013 inflation

Wed Jan 2, 2013 9:48am EST

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ANKARA Jan 2 (Reuters) - Turkish inflation is expected to be boosted by 0.7-0.9 percentage points in 2013 as a result of cigarette price hikes of some 15 percent imposed by several firms on Wednesday, analysts say.

Turkey raised the special consumption tax on cigarettes to 65.25 percent from 65 percent on Wednesday, with the minimum fixed tax on a packet of cigarettes set at 3.15 lira ($1.77) from 2.90 lira, the Official Gazette announced on Jan. 1. The government also announced a new specific tax of 0.09 lira per packet.

"The initial reaction of one of the tobacco companies, namely Phillip Morris, was to raise prices by 12.5 percent to 20 percent. If other companies follow in the footsteps of Phillip Morris, the impact on the inflation rate would be 0.8 basis points in January," wrote Selim Cakir, chief economist at TEB bank.

Philipp Morris, is one of the leading tobacco firms in Turkey.

A new system updating the fixed tax on alcoholic drinks and cigarettes automatically on the basis of producer prices every January and July also went into effect on Jan. 1.

"The tax increases on cigarettes were included in the medium-term programme," an economy official told Reuters, adding that these increases were important to reach budget targets.

In its medium term programme, the government expected a budget deficit of 33.5 billion lira ($19 billion) for 2012 and 33.9 billion lira for 2013. In January-November period this year, the budget deficit stood at 13.3 billion lira.

($1 = 1.7838 Turkish liras) (Reporting by Orhan Coskun; Writing by Seltem Iyigun)

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