Philip Morris International: New Study by Roland Berger Finds Tobacco Products Directive Will Cost Jobs and Hit Tax Revenue across Europe

LAUSANNE, Switzerland--(BUSINESS WIRE)--Apr. 24, 2013-- The Tobacco Products Directive (TPD) could adversely affect Europe’s economy, resulting in up to 175,000 job losses and lost tax revenue of up to EUR 5 billion throughout Europe, according to a new study published by Roland Berger Strategy Consultants.

The study, commissioned by Philip Morris International Inc. (PMI) (NYSE/Euronext Paris: PM), and undertaken by Roland Berger, measures the potential economic impact of several of the proposals under consideration by the EU including standardizing the packaging and labeling of cigarettes and a ban on menthol and slim cigarettes. It concludes that these measures have the potential to reduce prices across the whole tobacco market and to fuel the illicit trade in tobacco products, resulting in significant job losses and reduction in tax revenues.

“The introduction of the new Tobacco Products Directive could significantly affect the European economy, not only the tobacco sector,” said Patrick Mannsperger, Partner at Roland Berger Strategy Consultants. “The tobacco sector currently generates more than EUR 100 billion in tax revenue annually, a reduction in this revenue will require spending cuts or tax rises in other areas, which could have an adverse effect on the economy and a negative impact on employment in the EU.”

The report also concludes that:

• Pack standardization is likely to influence consumer behavior, resulting in downtrading to cheaper brands and growth in the illicit trade;
• The illicit trade, which already represents about 11 percent of cigarette consumption in the EU, could grow by 25 to 55 percent under the TPD as a result of standardized packaging and the ban on slim and menthol cigarettes which would mean these products would only be available on the illegal market. This translates to an increase in annual sales of illicit cigarettes from 68 billion to 84-106 billion.

Combined these factors could lead to:

• As many as 175,000 job losses;
• Up to EUR 5 billion in lost tax revenue in the EU in total;
• An increase in smoking rates by up to 2 percent as a consequence of price competition reducing prices across all tobacco market segments.

The TPD will hit some countries particularly hard. For example, in Poland, the TPD could cost up to 50,000 jobs and up to EUR 780 million in lost tax revenue. Bulgaria could lose up to 29,000 jobs, while in Greece annual tax revenue could decline by up to EUR 220 million.

The implementation of plain packaging, currently under discussion as a potential amendment of the new TPD, has the potential to further amplify the effects on tax revenue and jobs described above. Based on a first estimate, combined these factors could lead to as many as 305,000 job losses and up to EUR 8.5 billion in lost tax revenue in the EU in total. In addition, the illicit market could increase by up to 65 percent if the new TPD including plain packaging is introduced.

PMI’s Vice President, Communications, Julie Soderlund commented, “As this study confirms, standardizing packaging and banning 10 percent of the EU cigarette market, without any credible scientific evidence that this will reduce smoking rates or improve public health, risks fueling the black market, which already costs Member States EUR 12.5 billion annually. We hope the EU will reconsider these proposals and replace them with a regulatory framework that is not politically driven, but science-based and effective in reducing the harm caused by smoking without imposing unnecessary burdens on the economy.”

Click here to download the study free of charge: www.rolandberger.com/pressreleases

To learn more about PMI visit www.pmi.com.

About Roland Berger Strategy Consultants

Roland Berger Strategy Consultants, founded in 1967, is one of the world's leading strategy consultancies. With 2,700 employees working in 51 offices in 36 countries worldwide, we have successful operations in all major international markets. The strategy consultancy is an independent partnership exclusively owned by about 250 Partners.

About Philip Morris International Inc.

Philip Morris International Inc. (PMI) is the leading international tobacco company, with seven of the world’s top 15 international brands, including Marlboro, the number one cigarette brand worldwide. PMI’s products are sold in more than 180 markets. In 2012, the company held an estimated 16.3% share of the total international cigarette market outside of the U.S., or 28.8% excluding the People’s Republic of China and the U.S. For more information, see www.pmi.com.

Source: Philip Morris International

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