Taxes & Prices – Yesmoke Breaks the System

Starting from last July 1st, Sunday, all cigarettes in Italy will cost a minimum of four euro 30 per pack, with the exception of Yesmokes that will remain unchanged at 4 euro.

Sunday, in fact, the minimum excise duty increased and Big Tobacco raised its cigarette prices so that the companies could keep making the same profits as before.

But how much do they earn selling cigarettes in Italy?

According to our calculations, Philip Morris makes a 600% profit on Marlboros, British American Tobacco 375% on MSs, and Japan Tobacco Italia earns 430% on its Camels. Yesmoke, the other hand, selling at 4.00 euro a pack, earned 225% in the past, and will earn 178% in the future due to the increase of the minimum excise; it is less than before, but it is still an exaggerated profit.

Starting on Sunday then, Yesmokes will cost a good 30 cents less than the cheapest competitor. If with a 20-cent difference, Yesmoke’s sales growth was dizzying, how will sales grow with 30 cents? And what is going to happen with future excise increases, when the difference will grow to 40, 50 or 60 cents? Will Big Tobacco reduce its exorbitant earnings to keep Yesmoke from taking away its market share?

A competitive market has finally been recreated in Italy, thanks first to a ruling of the European Court of Justice with the abolition of the minimum price, and subsequently to the Italian Regional Court—the TAR of Lazio—with abolition of the minimum tax; these regulations had forced the competition to follow the increases decided by Big Tobacco. Now the State will be able to increase the excise duties without automatically determining higher cigarette prices.

That’s how it works all over Europe. Why should Philip Morris, BAT and Japan Tobacco earn higher profits in Italy than in France, and why should the Italian State have lower revenue than the French? On Sunday, if cigarette prices rise, is it the fault of the State that has raised taxes, or is it the fault of the producers who have increased their prices?

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