Eastern Tobacco (EAST.CA) has commenced implementation of a banderole on 50 percent of its cigarette pack production.
Banderole is an enhanced stamp tax system. Its application in Egypt mainly aims to fight smuggling, as several brands of Chinese cigarettes are illegally sold in the Egyptian market.
The illegally trafficked cigarettes have harmed Eastern Tobacco, which otherwise enjoys a complete monopoly on cigarette production in Egypt.
In a statement to the stock market, Eastern Tobacco said that the system will be applied to 50 percent of its production lines and will cost EGP 40 million ($5.7 million according to the official exchange rate).
Company officials have said that the new stamp tax will not lead to a price increase for consumers.
Investment bank Beltone Financial said in a note that the company’s management declared that fees on the banderole are to be absorbed by the company.
Eastern Tobacco posted a 41.5 percent drop in net profits for the three months to end-September, down to EGP 96.86 million ($14 million) from EGP 165.45 million in the same period last year.
However, revenue fell just 4.9 percent to EGP 1.17 billion.
Local cigarette prices increased significantly during the past few years as sales taxes increased significantly. Kiosks and small grocers are selling cigarettes at a higher price than their official cost.
The price increases, especially on cheaper brands, led to the emergence of a growing black market.
Source: Ahram Online
