Tax burden hurts tobacco makers

Gallaher Tobacco, the maker of Silk Cut and Benson & Hedges, has warned
that increased taxation of tobacco products has made trading conditions for the
industry much tougher.

Reporting a 2.1% increase in sales to £4bn for the six months ended June
2006, Gallaher said that it had made good progress despite the ‘challenging
conditions created by additional taxation’.

The group added that the tobacco industry remained subject to ‘significant
regulatory influence, including the levying of substantial tax and duty
charges’.

Authorities throughout Europe have changed the tax treatment of tobacco
products over the last year. Sweden has lifted cigarette taxes, Spain has
introduced a minimum tax for cigarettes, and tobacco excise duties in Eastern
Europe are expected to rise to match EU levels.

Evolution Securities analyst Andrew Darke said however that many of the
reforms were an opportunity as well as a threat.

He said the likelihood of increased excise charges in Eastern Europe could be
particularly beneficial.

‘These changes will be viewed as very helpful by the industry. The changes
within countries acceding to the EU will harmonise tax levels and prevent fiscal
tourism, which is in nobody’s interest,’ Darke said.