Imperial Tobacco Group PLC (IMT.LN) said Wednesday that the tax increase on tobacco announced earlier by U.K. Chancellor of the Exchequer George Osborne is a "big mistake" that will boost illegal counterfeiting and smuggling.
Osborne announced that the duty on tobacco products--which applies to cigarettes, cigars, hand-rolling tobacco, pipe tobacco and chewing tobacco--will rise by 5% above inflation, which equates to a rise of 37 pence on a standard packet of cigarettes.
Amal Pramanik, Imperial's U.K. general manager, said: "[This] heavy-handed tobacco taxation policy will simply tempt more smokers to buy illicit tobacco products.
"The U.K. is already a key target market for criminal gangs of tobacco smugglers and counterfeiters. Today, the government has given further encouragement to these criminals at the expense of shopkeepers, many of whom are struggling to make ends meet."
Earlier, Osborne said the increase in duty can be justified on health grounds. "Smoking remains the biggest cause of preventable illness in this country. There is strong evidence that increasing the price of cigarettes deters people from smoking," he told the U.K. parliament.
U.K.-based group Imperial is the world's fourth-largest tobacco group by sales.
Last month, the maker of Lambert & Butler, Gitanes Blondes and JPS cigarettes posted a fall in first-quarter revenue and volumes, hit by a trade ban in Syria, competition, trade buying patterns and destocking.
At 1405 GMT, Imperial Tobacco shares were up 41 pence, 1.6%, at 2535 pence, the fifth-highest gainer in the FTSE 100 Index.
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