Souza Cruz Drops on Possible Tax Increase, Smoke Ban

Source from:  Bloomberg 04/09/2009

Souza Cruz SA, Brazil's biggest tobacco company, fell for the first time in a week after a report said the federal government may raise cigarette taxes and Sao Paulo State approved a law banning smoking indoors. Souza Cruz, a British American Tobacco Plc subsidiary, slid 4.9 percent to 44.10 reais in Sao Paulo trading. The government plans to raise taxes on alcoholic drinks and may also increase cigarette tariffs to make up for tax breaks in other sectors, such as autos and durable goods, O Estado de Sao Paulo newspaper reported today, without saying how it got the information. Finance Minister Guido Mantega said March 30 that the government would raise cigarette taxes. The higher tax would increase prices by as much as 30 percent, Mantega said. "Higher tariffs would affect sales," BES Securities analyst Luiz Carlos Cesta said in a phone interview. Some consumers may start buying smuggled cigarettes with the rise in prices of legal products, he said. "This may happen initially, but the tendency is for it to go back to normal as time goes by." Cesta has a "sell" recommendation on Souza Cruz. Sao Paulo State is the most populous in the country, with 40 million inhabitants, and concentrates more than 30 percent of Brazil's gross domestic product, according to the state's Web site. Enditem