Japan's Top 3 Heated Tobacco Companies Raise Prices

Nov.17.2022
Japan's Top 3 Heated Tobacco Companies Raise Prices
Major heated tobacco companies adjust retail prices in Japan due to increased heated tobacco tax.

Three major heat-not-burn tobacco companies have recently adjusted the retail prices of their tobacco products in Japan. Under Japan's Tobacco Business Law, tobacco manufacturers must apply to modify the retail prices of their cigarettes and obtain approval from the Minister of Finance.


According to the company's official website, on August 16th of this year, PMI's Japanese subsidiary was the first to apply to the Ministry of Finance for a price increase on heated cigarettes. On the 25th, JT applied for a price increase of 20 to 30 yen per box for 41 brands. The following day, on the 26th, BAT's Japanese subsidiary also applied for a price increase. All three major companies have now applied for a price increase.


Two months from now, on October 1st, 2022, Japan Tobacco Inc. (JT) will announce price adjustments for their "Ploom" series and Philip Morris Japan (PMJ) will do the same for their "IQOS" series. Additionally, British American Tobacco Japan (BAT) plans to adjust the retail prices for their "glo" series on November 1st, 2022. Both companies are seeking approval for these changes, and some of their brands' prices will remain unchanged. For example, JT's Mevius Plume Tech Current will increase from 570 yen to 600 yen per box, and Mevius Plume Tech Plus will increase from 580 yen to 600 yen.


Several brands of Japanese heat-not-burn products have increased their prices, not only for the sake of corporate profit but also due to the increase in heat-not-burn tobacco tax. Little known to the public, this tax adjustment has taken five years and was only quietly completed in October this year. 2FIRSTS has exclusively organized the Japanese heat-not-burn tobacco tax, taking you through the "five-year plan" of the tax.


From October 1, 2018, the process will be carried out in five stages, each of which will be conducted in a phased manner.


As the market for heated, non-burning tobacco has rapidly expanded in recent years, a new tax category needs to be established for these products. The tax system also needs to be reassessed based on the unique features of these products.


In 2017, the head of the Liberal Democratic Party's Tax Research Committee, Hiroshi Miyazawa, approved plans to gradually increase the tax on "heat-not-burn" tobacco products. Over a period of five years, from the 2018 fiscal year to the 2022 fiscal year, the tax rate will eventually be increased to around 70-90% of the tax rate for traditional cigarettes. After coordination with the Komeito party, it was included in the ruling party's tax reform outline plan drafted on the 14th.


The Japanese Ministry of Finance and the National Tax Agency have decided to implement a phased collection of taxes on heated non-combustible tobacco, considering the impact on businesses and consumers. This will start on October 1, 2018 and will be conducted in five stages, which marks the implementation period of a staged review of the tax system that has been ongoing for five years. This year marks the final phase of the five-stage review.


The tax calculation method of HNB is quite complex.


During the transitional period of the last five years, cigarette taxes also increased. In 2018, 2020, and 2021, the cigarette tax was raised by 1 yen per cigarette or 20 yen per pack. However, in 2022, instead of raising the cigarette tax again, the heated tobacco tax increased. This transitional heated tobacco tax is linked to the cigarette tax. According to the website of the Japanese Ministry of Finance, prior to the tax reform on October 1, 2018, "heated non-burning tobacco" was classified as "tobacco leaf" for tax purposes, with 1 gram of product weight equivalent to 1 cigarette. Because the weight of each heated non-burning cigarette is relatively light, the tax percentage in the price is lower.


After tax reform, "heated tobacco products" have become a new taxable category with a rather complex tax calculation method. How much does a pack of taxable HNB tobacco weigh? According to the Japan National Tax Agency's website, it must be converted into "cigarette units." Specifically, based on weight and retail price, the following formula will be used to calculate the number of cigarette units (see chart below).


The translation and compilation of 2FIRSTS is sourced from the official website of the Japan Taxation Department.


For example in 2018, the weight of a pack of heat-not-burn tobacco products (including the weight of the paper roll and filter) multiplied by 0.8, plus the weight of the tobacco in a pack of heat-not-burn products (excluding the weight of the paper roll and filter) divided by 0.4g, multiplied by 0.5, multiplied by 0.2, plus the retail price of a pack of heat-not-burn products divided by the average retail price of a pack of cigarettes, multiplied by 0.5, multiplied by 0.2. Over five years, the percentage calculated in accordance with note 2 will decrease by 1/5 each year, while the percentage calculated in accordance with note 3 will increase by 1/5 each year. This conversion will be completed in five years.


Every year, the numbers increase or decrease by 0.2. Image source: Japan National Tax Agency website.


Due to the complexity of the conversion method, when converting heated tobacco to cigarettes, the National Tax Agency's website also provides a "Simple Conversion Table for Heated Tobacco" to help convert it into the number of cigarette sticks.


2FIRSTS will continue to keep a close eye on issues related to heated tobacco and taxation in Japan. Stay tuned for updates.


The "Quick Calculations Table for Heating Tobacco" assists in converting the number of heated tobacco sticks to traditional cigarettes. The image is sourced from the official website of the National Tax Agency in Japan.


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