Source: O Globo, 31/03/2009

SAO PAULO. The tobacco industry reacted to the government's decision to pass on to the sector the account of the new relief measures announced yesterday. According to the director of Corporate Affairs at Souza Cruz, Fernando Pinheiro, the increase in the burden of taxes on cigarettes should disorganize the sector and bring more smokers to the informal market.

Pinheiro estimates that the share of taxes in the final cost of the tobacco industry will increase from 58% to 65%.

- The measure disrupts the sector. Consumers will start consuming products from the informal market.

The Souza Cruz representative also stated that companies in the sector will have to rearrange the means of production to absorb the impacts of changes in taxation. He guaranteed, however, that Souza Cruz does not intend to dismiss or reduce investments because of the tax increase, which should be “fully passed on to the consumer”.

Philip Morris Brasil also stated, by means of a statement, that it does not oppose the “reasonable increase” of the tax, but defended the same rate for all cigarettes, as is the case in other countries. The company also suggests that the government should take the opportunity to implement a "complete and widely discussed reform of the current system of taxing the IPI tax on cigarettes". (Lino Rodrigues and Adauri Antunes Barbosa)