Contraband cigarette is now a multibillion-dollar business:
LAST YEAR, the Jamaican Government raised the tax on cigarettes from $14 to $17 per stick, with the intent of raising $876 million of additional tobacco revenue for the Treasury.
But the company, whose products would have borne the lion’s share of that tax haul, is suggesting the State might finally have overplayed its hand.
Managing Director of Carreras Marcus Steele said that with three months of revenue collection still to go, instead of additional inflows, the tax authorities have collected $1 billion less revenue from the so-called ‘sin tax’ than the previous year when the levy was at $14 per stick, the upshot of which is that its budget is now facing a shortfall of $1.8 billion from smokers.
This situation has arisen, he said, because the excise tax is dampening sales of legitimate tobacco products – which are taxed at the ports entry – and feeding customers to illicit traders whose cigarettes evade Customs. By Steele’s reckoning, the illegal cigarette trade is now a $5-billion business that is still growing, and accounts for roughly 30 per cent of the market for tobacco products. Carreras itself makes nearly three times that in revenue. The Ministry of Finance & Planning has not responded to a Financial Gleaner request made over a week ago for confirmation of the revenue fall-off and what actions the Government is considering, but the Carreras boss says the correct state response should be a full or partial rollback of the tobacco tax. “I want to be bold enough to say the Government may want to think of rolling back some or all of it, if they wish to reverse the trend, because it is all about pricing,” he said.
Illicit traders benefiting
Steele said the illicit traders counterfeit Carreras’ products and undersell the listed Jamaican company because those products, as well as some legitimate brands not meant for the Jamaican market, are not paying government duties.
“These products were not made for the Jamaican market. They were not declared at the ports. They are not manufactured in Jamaica. They pay zero tax, but they are being consumed and the Government gets nothing,” Steele said of the illicit products, the prevalence of which is picked up by the ‘stick and pack’ survey done by his company every three months.
Against a recommended stick price of $55 for Carreras’ products, illicit cigarette brands are said to be selling for as low