Government Hands Revenue to Criminals With Above Inflation Increase in Tobacco Duty

LONDON, March 24, 2010 - Following the 4% increase in tobacco duty in today's budget,
JTI believes that the current Government has taken a backward step by
returning to a policy of duty escalation above inflation which will seriously
undermine the progress made in reducing tobacco smuggling.

Daniel Torras, Managing Director of JTI UK, commented:

"HM Treasury already loses c. GBP3bn each year in tax revenue
to smugglers, and has lost up to GBP38bn since 2000/1 to smugglers and
crossborder shoppers, the size of the annual UK Defence budget. This tax rise
is further good news for criminals who already view the UK as a smugglers
paradise and do not care what age their customers are.

"Since January the tax on cigarettes has risen more than the
previous three UK Budgets combined. Today's increase follows the VAT increase
on cigarettes at the beginning of 2010 of 18p, which was in effect a tax on a
tax, and brings the total tax rise so far this year to 33p."

Notes to Editors:

Japan Tobacco International (JTI) is a member of the Japan
Tobacco Group of Companies (JT), a leading international tobacco product
manufacturer. It markets three of the top five worldwide cigarette brands:
Winston, Mild Seven and Camel. Other international brands include Benson &
Hedges, Silk Cut, Sobranie of London, Glamour and LD. With headquarters in
Geneva, Switzerland, and net sales of USD 9.6 billion in the fiscal year
ended December 31, 2009*, Japan Tobacco International has more than 25,000
employees and operations in 120 countries. For more information, visit
www.jti.com.

In the UK JTI have over 1,800 employees and brands including Benson &
Hedges, Camel, Silk Cut, Mayfair and Hamlet. JTI's regional office is
headquartered in Weybridge, Surrey with a national distribution centre in
Crewe, Cheshire and a manufacturing base in Ballymena, Northern Ireland.
Since 2007, Gallaher Limited has formed part of JTI.

    - Prior to the Budget a premium brand of 20 cigarettes selling
      for GBP6.13 a pack in the UK were GBP3.00 to GBP4.00 a pack cheaper in
      many European countries and cheaper still outside the European Union.

    - Prior to the Budget the total tax yield on a premium brand
      packet in the UK (GBP4.67) represented over 75% of the recommended
      retail price (RRP). For value brands the tax yield is GBP4.09 which
      represents 88% of the recommended retail price (RRP)

    - In 2009, tobacco tax revenue raised over GBP10.5 billion for
      the Treasury - GBP8.8 billion in excise duty plus GBP1.7 billion in
      VAT.

    - HMRC estimate that in 2007/8 smuggling and crossborder
      shopping, collectively referred to as non-UK duty paid (NUKDP)
      consumption,
 lost the Government tax revenue of up to GBP4 billion:

      - NUKDP share of the total cigarette market up to 24%
      - Smuggled share of the total cigarette market up to 17%
      - Crossborder shopping share of the total cigarette market 7%
      - Counterfeit share of all large scale cigarette seizures 49%
      - NUKDP share of the total handrolling tobacco market up to 63%
      - Smuggled share of the total handrolling tobacco market up to 54%

    - HMRC estimates of the scale of smuggling and crossborder
      shopping since 2000/1 amounts to a loss of up to GBP38 billion in tax
      revenue.

    - When VAT was reduced in December 2008, tobacco and alcohol
      excise duties were increased to leave prices broadly unchanged.
      However, when VAT returned to 17.5%, there was no compensatory
      reduction in the excise duty. As a result, the price of a pack of 20
      cigarettes rose by up to 18 pence, the largest single increase in ten
      years.

    Media Enquiries

    JTI UK
    Jeremy Blackburn
    +44(0)1932-372000

    Cardew Group
    Tim Robertson/David Roach
    +44(0)20-7930-0777

Media Enquiries: JTI UK, Jeremy Blackburn, +44(0)1932-372000; Cardew Group, Tim Robertson/David Roach, +44(0)20-7930-0777