BAT warns new excise tax a blow to cigarette firms

JAKARTA (JP): Publicly listed cigarettemaker PT BAT Indonesia said on Monday that the increase in excise taxes would hurt the country's cigarette industry, particularly small and medium-sized cigarette producers.

Company president Mark Antony Jennings said the government's new tax policy, which raised the excise taxes on cigarettes and their minimum retail price, would cut the sales of all the country's cigarette companies.

But small and medium-sized cigarettemakers have suffered more from the new tax policy than big companies because the regulation has imposed higher increases on the latter than the former.

"The new excise taxes are unfair," company president Mark Antony Jennings told reporters after the company's extraordinary shareholders meeting.

The new tax policy, which became effective on April 1, raised excise taxes on clove and nonclove cigarettes by between four and eight percentage points and minimum retail prices by 10 percent.

According to the Ministry of Finance, the government intentionally imposed higher tax increases on small and medium- sized companies than on big companies, with the future goal of "creating uniform excise taxes".

Under the new regulation, nonclove cigarette producers with an annual output above six billion sticks, such as BAT, have to pay an excise tax of 40 percent, which is up from 36 percent.

Jennings said BAT expected sales to decrease this year due to the new regulation, but he did not specify how much the decrease would be.

"It (the decrease) is difficult to say, because we don't have experience with such dramatic increases in excise taxes," he said.

Jennings also dismissed the country's tax system for cigarettes as "too complicated", calling on the government to introduce a "reasonable" tax system.

He said the company would try to talk to the government about a reasonable tax system, but he did not elaborate on it further.

BAT shareholders approved on Monday the company's two-for-one planned rights issue, a new board of commissioners and a new board of directors.

Jennings said the company planned the rights issue for May 9, when shareholders will have the right to buy two shares at a subscription rate of Rp 5,700 per share.

The company expects to raise Rp 250.8 billion (US$32.02 million) in funds from about 44 million shares.

The funds will be used to repay debts following the acquisition of nonclove cigarettemaker PT Rothmans Pall Mall Indonesia.

BAT produces, among others, Dunhill, Kansas, Lucky Strike and Commodore, while Rothmans produces Pall Mall.

Jennings said BAT booked Rp 1,015 billion in sales in 1999, a 18 percent increase from Rp 858.3 billion in 1998.

It gained a net profit of about Rp 30.169 million in 1999, a 450 percent increase from Rp 5.472 million in 1998.

Jennings said the company accounts for approximately ten percent of the total cigarette market in Indonesia. (07)