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Philip Morris, Imperial Tobacco decide to increase prices prior to tax jump

The biggest cigarette maker in Korea - KT&G - reported on Dec. 25 that it will increase the cigarette prices by 2,000 won ($1.80) beginning Jan. 1, in line with the authorities' determination to bring up taxes on tobacco products.

KT&G at first thought of putting an additional 200 won to 500 won along with the expected tax jump so as to balance the forecasted drop in sales, but said it has chose to stay with the minimum demanded amount.

The authorities have predicted that the 2,000 won increase will lead to a 33% drop in yearly sales of cigarettes, with cigarette makers taking 940 billion won in sales losses.

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Beginning next year, popular cigarette brands manufactured by KT&G such as Esse, The One and Raison will be marketed at the price of 4,500 won, up from 2,500 won currently. Lower-tier cigarettes including This, Hallasan and Lilac will offer for 4,000 won, a 2,000 won hike.

Imperial Tobacco made the decision to increase the price of Davidoff cigarettes by 2,200 won. The British international cigarette manufacturer that is the owner of the brand has the right to establish the price of its cigarettes.

Philip Morris, another big cigarette producer that keeps the second-largest market share in Korea after KT&G, will also lift the prices for its cigarettes by 2,000 won.

Philip Morris' Marlboro and Parliament cigarettes will be sold for 4,700 won, up from 2,700 won. Other foreign cigarette manufacturers such as British American Tobacco and Japan Tobacco International have yet to declare their last prices, but they were demanded to launch their retail prices before Dec. 26.

The 2,000 won hike is categorised into a tobacco consumption tax, local education tax, health payments and value-added taxes.

The authorities protected its decision to increase taxes after a reaction from the public, saying that the step is supposed to discourage cigarette use.

The proportion of Korean smokers was 44% in 2013, among the highest in the Organization for Economic Cooperation and Development (OECD), and the country also has among the cheapest cigarette prices in the OECD.

In September, cigarette sales at the country's three largest convenience store chains elevated by over 30% after several news reports on the arriving cigarette price increases shown on TV.

In response to the growing incidents of stocking, the Ministry of Strategy and Finance said in September that it will penalize retailers up to 50 million won if they buy cigarettes in large volumes.