Peru drops foreign tobacco, alcohol tax

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LIMA--Foreign tobacco companies are pleased with the Peruvian government's hike in the country's Selective Consumption Tax for cigarettes, spirits and gasoline.

The new tax package, approved April 6, increases the tax on cigarettes by 33 cents a pack for both locally produced and imported tobacco.

The move effectively eliminates an earlier tax, announced in January, that raised taxes only on imported cigarettes by more than 100%. Tobacco giants Philip Morris and British American Tobacco harshly criticized the earlier measure, going as far as to say they were studying the possibility of pulling out of the Peruvian market.

In full-page ads published in Peru's major dailies, both foreign companies congratulated the government's change, saying that it shows that Peru "is a modern country capable of ensuring equal conditions for all companies."

While the tobacco companies celebrated new equal treatment established by the taxes, business people in the spirits industry said the increase will further hurt their market, which is suffering in the country's long-running recession.

The hardest hit will be the country's brewers, which saw sales decline 10% in 1998. With the increase, taxes account for roughly 35% of the price of a beer.

Copyright April 1999, Crain Communications Inc.

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