June 6, 2008 / 6:31 AM / 11 years ago

Tobacco tax hike reports hit Japan Tobacco, shops

TOKYO, June 6 (Reuters) - Shares in Japan Tobacco Inc (2914.T) and convenience store operators sagged more than 5 percent on Friday after media reported the government might increase tax on tobacco, more than tripling cigarette prices.

That would likely curb the number of smokers and would be a big blow for Japan Tobacco, the world’s No.3 tobacco maker, which is already grappling with shrinking domestic cigarette demand due to an ageing population and increasing health consciousness.

The reports that the price of a pack of cigarettes may jump to 1,000 yen ($9.44) from around 300 yen also pushed down shares in convenience store chains Lawson Inc (2651.T) and FamilyMart (8028.T).

“Of course the tobacco tax is among the options ... but the issue must be discussed as part of an overall debate on tax reform,” Economics Minister Hiroko Ota told a press conference.

Cigarette sales at convenience stores have jumped in recent months after a new requirement for vending machine shoppers to use an ID card to show they were old enough to buy tobacco.

Shares in Japan Tobacco, half owned by the government, fell 5.6 percent to 485,000 yen, making it the biggest drag on the Tokyo market's benchmark Nikkei average .N225.

No.3 convenience store chain Lawson dropped 5.8 percent and FamilyMart slid 5.5 percent, while the Nikkei average rose 1 percent.

But analysts and market participants doubt whether such a large tax increase would be introduced because it would upset tobacco growers and smokers and would not raise much additional government revenue as sales slowed. “(JT is) down on the report of the tax hike, that’s inevitable. After all, a rise to 1,000 yen is big enough that a lot of people would probably quit smoking,” said Mitsushige Akino, chief fund manager at Ichiyoshi Investment Management.

“If you look at global standards (for cigarette taxes) it might not be so much ... But I think they won’t go that far.” If the price of cigarettes is set around 1,000 yen a pack, the government will get a tax rise of 8 trillion yen ($75.5 billion) or so, the Nikkei business daily said, helping it to deal with rising pension and welfare spending.

In Japan, a 10 percent rise in the cigarette price normally lower demand by 2-3 percent, but it is hard to estimate the impact of tripling prices because of unprecedented size of increase, Nikko Citigroup analyst Nobuyoshi Miura said in a report to clients. (Reporting by Sachi Izumi and Elaine Lies; Editing by Rodney Joyce)

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