Cheap smokes finally going up in price

January 13th, 2015 by Philip Brasor & Masako Tsubuku

Lower class: the 3 most inexpensive cigarette brands

Lower class: the 3 most inexpensive cigarette brands

At the end of last year the ruling coalition studied some tax revisions for 2015 and decided to review the one for tobacco. The review mainly affects three brands, which remain cheap five years after cigarette taxes were increased considerably. These three brands — Wakaba, Echo and Golden Bat — are classified as “third-class tobacco,” which meant that their tax was half the portion levied on other cigarette brands. Apparently, the government wants to make the tax on these three brands equal to that for other brands.

The reason for the tobacco tax in the first place had nothing to do with health and everything to do with the notion that only well-off people smoked, which is the same rationale that governed the tax on alcohol. This was back in the middle 19th century. The government originally owned the tobacco monopoly and still has a hefty share of the stock in the nominally private Japan Tobacco, so the tax has always had a political dimension.

During the Meiji Era, when Japan suddenly decided it had to compete with the rest of the world, the authorities needed revenue fast, and tobacco was an easy way to get it. With the rise of the military and more involvement in foreign wars, the government supplied soldiers with free cigarettes in order to cultivate the tobacco market. Thus cigarettes became a classless commodity whose sales were spurred by its addictive nature.

Last April, in line with the consumption tax hike, the price of a pack of cigarettes increased by about ¥20. At this point it means that on average 64% of the price is now some sort of tax. For example, Mevius, which used to be called Mild Seven, now costs ¥430 of which ¥276 is tax. The three third-class brands, however, still only cost between ¥210 and ¥260.

The reason there are third-class brands is that the government is obligated to buy all the produce grown by tobacco farmers in Japan, and invariably some of the leaves are inferior to others. Instead of disposing of these inferior leaves they are used to produce third-class cigarettes, whose price is much lower, as is the tax applied to them. Supposedly the flavor is also inferior. There are also three other third-class brands that are only sold in Okinawa Prefecture.

The decision to raise the tax on third-class cigarettes is similar to the decision to raise the tax on cheaper beer-like beverages, which were devised by liquor companies to get around the high tax on real beer. After the tobacco tax was raised in 2010, the three cheap national brands suddenly became more popular, simply because they were less expensive. Just a year after the tax was enacted, Echo rose to number eighth in popularity nationwide. Now Wakaba is number five and Echo number 7. Golden Bat has also enjoyed higher sales, especially since the consumption tax hike.

For reference purposes, ¥106 of a pack of ¥430 cigarettes goes to the national government, ¥122 represents regional tobacco taxes, ¥16 a “special” tobacco tax and ¥31 is consumption tax. According to JT, the smoking rate nationwide is now 19.7 percent (men 30.3 percent; women 9.8 percent), or about 20 million people. In November 2014 14.4 trillion cigarettes were sold, a 7.6 percent drop from the number sold in November 2013, accounting for ¥308 billion in revenues.

Twenty percent of convenient store revenues is made from cigarette sales. The most popular brand is 7 Stars (3.9 percent), followed by Mevius One (3.2), Mevius Super Light (3.1), Mevius Light (2.4), Wakaba (2.3), Mevius Extra Light (2.3), and Echo.

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