Philip Morris International, Inc. is a global tobacco manufactures. The company produces and distributes cigarettes and other nicotine related consumer products. Philip Morris is one of the largest cigarette manufactures in the world, however, has seen a steady decline in revenue throughout the past two decades. This decline is commonly contributed to the increased taxes and other regulations that are placed on the industry. The following discusses Philip Morris International, Inc., as well as the impact tax increases the government has placed on the tobacco industry.

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Incorporated in 1987, Philip Morris International, Inc. is one of the largest tobacco manufactures in the world. Philip Morris is engaged in both manufactures and sales tobacco products, such as cigarettes and other nicotine-containing products. The company sells products throughout 180 different country, where they hold the one of the first two market share positions. Philip Morris’s portfolio consists of both premium to low-price brands. Marlboro is one the company’s top premium-price brand, along with Virginia Slims and Parliament. L&M and Chesterfield are Philip Morris’s leading mid-price brands, while Red & White, Lark, Muratti, and Bond Street are the company’s leading international brands. Marlboro, however, consists of approximately thirty-three percent of the company’s total shipment volume (SEC, 2017).

The tobacco industry is a highly competitive sector of the economy. Philip Morris competes based on: brand recognition, taste, packaging, advertising and marketing, and innovation. The company’s competitors consist of three large international tobacco corporations, as well as several local and regional owned companies. Philip Morris competes mainly with their American cigarettes, such as L&M, Chesterfield, and Marlboro (SEC, 2017). However, governmental regulations and tax increase challenge the company’s ability to fully compete in the industry.

Along with the diminishing acceptance of smoking, governmental actions have resulted in decreased industry volume. This trend is not expected to go away anytime soon. Due to the health implications, the tobacco industry is one of the top sectors inflicted with the most frequent governmental actions. “According to the industry sources, since 2002, 47 states, Washington D.C., and several U.S. territories have increased their cigarette tax rates more than 120 times” (MarketLine, 2016). This type of action in this type of frequency can have devastating consequences on the entire industry, let alone individual corporations. This is not only a domestic problem for the organization either. These problems are even more intense in other operating countries, such as Vietnam and Japan. In Japan, the government has exercised two tax increases during the past ten years, and as a result, the price for a pack of cigarettes in Japan has increased dramatically (MarketLine, 2016).

Tax regimes place Philip Morris at a competitive disadvantage because of their emphasis on premium-priced products. When cigarette prices increases, the consumers are more likely to choose the low-priced option, where Philip Morris is unrepresented. Thus, when taxes increase, the company’s profitability and volume can be adversely affected. “Significant increases in cigarette-related taxes have been proposed or enacted and are likely to continue to be proposed or enacted in numerous jurisdictions” (SEC, 2016). This issue is expected to continue to impact the company’s sales. When cigarette taxes are increased, the consumer shifts from premium-priced products to the low-or-mid-priced cigarettes. Philip Morris is under represented in these categories (SEC, 2016). It is expected that these discriminatory tax structures will continue. As a result, Philip Morris’s profits will continue to be affected.

Tax increases force tobacco companies to take on large expenses which, as a result, could have a horrifying adverse effect on their profitability. Not only are tobacco companies subjected to stringent regulations on their advertising and promotions, they are also subjected to frequent increased laws and regulations that have a direct impact on the company’s overall success. Overall, this paper will analyze the impact that tax regimes have had on Philip Morris, as well as the entire tobacco industry.