• Bloomberg


Tobacco taxes should be raised until the average price for a pack of cigarettes is about ¥700, or 75 percent more than the present level, to cut medical costs, according to health minister Yoko Komiyama.

The ministry, which is participating in a Tax Commission session, will push for increasing tobacco levies by ¥100 annually for three years, Komiyama said recently.

Most of the members of the panel agreed with the idea last year, she said.

Efforts to raise duties have been complicated by government ownership of a controlling stake in Japan Tobacco Inc., the world’s third-biggest publicly traded cigarette maker, and concerns that tax revenue may decline for the country facing the world’s largest public debt.

Smoking was responsible for at least ¥4.3 trillion in medical costs and economic losses for Japan in 2005, according to a study by Institute for Health Economics and Policy.

“At that level, we can expect people who want to quit smoking to stop, while maintaining the level of tax revenue,” said Komiyama, 63, who became minister of health, labor and welfare Sept. 2. “It’s also the best way to prevent underage smoking.”

Almost 10 percent of the population under 20 years old had smoked at least once, with 1.2 percent of the age group smoking every day, according to a study funded by the health ministry in 2007.

The tax panel, led by Finance Minister Jun Azumi, proposes reducing the government’s stake in Japan Tobacco to a third from about half, he said Sept. 16.

The maker of Mild Seven and Camel cigarettes has gained 21 percent this year in Tokyo trading, giving it a market value of ¥3.7 trillion.

The average price for a pack of 20 cigarettes went up by 33 percent in October last year to ¥400, or about $5.20. That compares with the average price of $10.80 in New York City, when the city raised taxes in July 2010.

The proposal to increase taxes is in accordance with the manifesto of the Democratic Party of Japan, Komiyama said. The manifesto calls for abolishing a law that requires the government to own more than half of Japan Tobacco’s outstanding shares, and that tobacco-related issues be included in the “health agenda,” she said.

Japan Tobacco said Sept. 6 it wants the government to sell its shares and use the funds to finance reconstruction after the March 11 quake and tsunami.

The Children’s Investment Fund Management UK LLP, the London hedge fund founded by Christopher Cooper-Hohn, has been lobbying for Japan Tobacco to buy back at least 17 percent of its stock and raise dividends.

The volume of cigarette sales fell about 20 percent since the tax was added in October and further price increases will accelerate the decline, Japan Tobacco has said.

Central and regional governments raise about ¥2 trillion in tax revenue each year from tobacco, according to the Finance Ministry.

One of every four adults in Japan smoked in 2009 according to Japan Tobacco, down from one in three in 2000.

In the United States, one out of every five adults smoke cigarettes, according to the U.S. Centers for Disease Control and Prevention.

The health ministry will also submit legislation that would require businesses to ban smoking or have separate sections, Komiyama said.

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