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Cigarette Prices Should Rise 75%, Japan Health Minister Says

Sept. 20 (Bloomberg) — Tobacco taxes in Japan should be raised until the average price of a pack of cigarettes is about 700 yen ($9.15), or 75 percent higher than the current level, to cut medical costs, Health Minister Yoko Komiyama said.

The ministry, which is participating in a tax panel session, will push for increasing tobacco levies by 100 yen annually for three years, Komiyama said. Most panel members 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 a country facing the world’s largest public debt. Smoking in Japan was responsible for at least 4.3 trillion yen in medical costs and economic losses in 2005, according to the 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 on Sept. 2. “It’s also the best way to prevent underage smoking.”

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

Japan Tobacco Stake

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 22 percent this year in Tokyo trading, giving it a market value of 3.7 trillion yen, or $48 billion.

The average price of a pack of 20 cigarettes increased by 33 percent last October to 400 yen, or about $5.20. That compares with the average price of $10.80 in New York City, where taxes were raised in July 2010.

“If the price is over 500 yen, it will damage the sales of tobacco, but cigarette companies can still get profit since a tax increase will also benefit the profitability of the companies,” said Mikihiko Yamato, a research partner at Japan Invest KK.

Children’s Fund

Japan Tobacco rose as much as 5.2 percent, the biggest intraday gain in almost two weeks, to 367,000 yen before trading at 366,500 yen as of 12:33 p.m. on Tokyo’s stock exchange.

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

The cigarette maker said Sept. 6 it wants the government to sell its shares and use the funds to finance reconstruction after a March 11 earthquake and tsunami left more than 20,000 people dead or missing.

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.

6 Million Deaths

Central and regional governments raise about 2 trillion yen 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. That’s down from one in three in 2000.

“You have to have political will to bring down smoking rates,” said Judith McKay, a Hong Kong-based senior adviser to the World Lung Foundation who has campaigned for stricter tobacco control. “Japan is the one exception.”

In the U.S., one of every five adults smokes cigarettes, according to the U.S. Centers for Disease Control and Prevention. Smoking was estimated to be responsible for $193 billion in annual health-related economic losses in the U.S. between 2000 and 2004, according to the CDC.

Tobacco-related illnesses comprise one of the biggest public-health threats and kill almost 6 million people, including 600,000 non-smokers, a year, according to the World Health Organization. Almost 80 percent of the world’s 1 billion smokers live in low- and middle-income countries, the Geneva- based agency said on its website.

Carried a Sign

Japan’s health ministry also will submit legislation at the session requiring businesses to ban smoking or provide separate smoking sections, Komiyama said. The ministry probably will give exceptions to restaurants and hotels for a few years and subsidize the purchase of ventilation equipment, she said.

“It may be extreme to say this, but I’m not stopping people from shortening their lives themselves,” Komiyama said. “But I don’t want to let them cause trouble for others.”

Komiyama began advocating anti-smoking measures when she became a lawmaker in 1998 and found other legislators smoked in the parliament buildings and at meetings. She said she had been careful about protecting her throat when she worked as an anchorwoman for public broadcaster NHK for more than 20 years.

“I walked around with a sign that said ‘no smoking at my table’ to every meeting I attended,” Komiyama said. “Then many lawmakers who didn’t enjoy the smoke began sitting near me. That’s how this started.”

To contact the reporters on this story: Kanoko Matsuyama in Tokyo at kmatsuyama2@bloomberg.net Shunichi Ozasa in Tokyo at sozasa@bloomberg.net

To contact the editors responsible for this story: Frank Longid at flongid@bloomberg.net Jason Gale at j.gale@bloomberg.net

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