This article first appeared in The Edge Financial Daily on September 21, 2018

KUALA LUMPUR: A price war among tobacco companies is primed to heat up today as the country’s largest player British American Tobacco (Malaysia) Bhd (BAT) rolls back the prices of all its cigarette brands to pre-sales and service tax (SST) levels.

The Edge Financial Daily understands that BAT has decided to revert to pre-SST prices where a 20-stick cigarette pack of Dunhill, Benson & Hedges and Kent will now cost RM17 from RM17.50, while that of Pall Mall and Rothmans will be reduced to RM15.50 and RM12 from RM16 and RM12.50 respectively.

Checks at retail outlets yesterday also found that JT International Bhd (JTI) has reduced the price of a 20-stick packet of LD from RM12 to RM11.80, but still higher than RM11.50 before the implementation of SST. However, the group’s premium brands — Mevius and Winston — remained unchanged at RM17.50 and RM16 respectively.

The disparity in pricing among the three major tobacco players already started following the reintroduction of the SST on Sept 1. BAT, together with JTI, then raised their cigarette prices by 50 sen while those of Philip Morris (Malaysia) Sdn Bhd (PMM) brands went up by 20 sen.

However, PMM, which had the least increment in selling price, was quick to respond in a Sept 14 report by The Edge Financial Daily that the company had fully passed down the 10% sales tax to consumers, without any form of discounts in line with its cost structure.

Its managing director Kang Tae Koo was quoted as saying that PMM had adjusted the prices of all of its products in accordance with local regulations and requirements.

“As such, we would like to emphasise that we did not absorb some or any of the sales tax which resulted in price differences with other manufacturers in the market,” he said then.

As such, BAT’s latest move to roll back its recent price hikes is likely to raise legal issues as any tobacco tax hikes must be fully passed on to consumers under the Control of Tobacco Products Regulations 2004, which is enforced by the ministry of health (MoH).

On Aug 31, JTI and BAT announced that they were seeking regulatory approvals to increase the prices for all their cigarette brands that they distribute in Malaysia post-SST. It is understood that the approval is still pending from the MoH.

When contacted, a BAT spokesman said: “Given the market situation as we see it today and the non-clarity of when the tax approach would be resolved, we have decided to revert to our original prices while waiting for guidance from the MoH.”

“We have sought and are still awaiting from the MoH a clear guidance on the tax approach and imputation resulting from changing the goods and services tax (GST) to SST,” he added, noting that the transition from GST to SST had resulted in price discrepancies in the market, with different interpretations of the tax approach.

The spokesman said the company will revise its prices to be in compliance accordingly as soon as it receives the clarity and guidance from the MoH.

This is not the first time that BAT has rolled back its price changes made. After implementation of the GST in April 2015, BAT announced a price increase of 50 sen for all its cigarette brands but on April 17 that year, it reverted to pre-GST prices. Three months later in June 2015, the company decided to increase cigarette prices by 30 sen.