Govt. tax revenue from fags falters in 4Q

Ceylon Tobacco Company PLC (CTC), which enjoys a virtual monopoly in manufacturing cigarettes in Sri Lanka, yesterday said its contribution to the government coffers by way of taxes slowed down in the final quarter (4Q16) of the financial year ended December 31, 2016 (FY16).

The excise tax bill fell to Rs.14.79 billion in 4Q16 from Rs.17.74 billion posted for the same period a year ago and the total taxes for the period edged down to Rs.17.15 billion from Rs.17.74 billion despite the imposition of the value-added tax (VAT).

Though the excise tax for FY16 rose to Rs.87.4 billion from Rs.80.39 billion posed for the previous year, according to the company’s full-year results, government revenue from excise in the 4Q16 quarter fell by Rs.13.2 billion compared to 3Q16.

The total tax bill for FY16, including VAT, stood at Rs.89.7 billion, up from Rs.80.39 billion recorded in the previous year. CTC delivered record excise gains of Rs.72.6 billion for the government during the first nine months of FY16— a 16 percent increase compared to 2015.

CTC had to raise the prices of its products by an unprecedented 43 percent due to an excise duty increase by the government last October and the introduction of 15 percent VAT in November.

It is anticipated that this will continue to impact both the company’s and government’s revenue in 2017. As a result of the business impacts faced, CTC closed two leaf depots and reduced the factory shifts by a third, in early 2017.

With legally manufactured cigarettes becoming more expensive and unreachable to average consumers, CTC warned that a large percentage of cigarette consumers would be forced to turn to smuggled cigarettes or cheaper substitutes such as beedi. As to the prices stand currently, the smokers can purchase around 10 beedis for the price of one cigarette, while the smuggled cigarettes are widely available for half the market price. CTC noted that during the past year, the law enforcement agencies continued to work towards curtailing the spread of unauthorized and illicit tobacco products reaching the local market with a total of 1,842 raids. However, based on the increase in the number of detections, which have taken place since the price increase, the company noted that it is apprehensive that the high prices in legal cigarettes have accelerated the influx of smuggled tobacco products.

Meanwhile, for 4Q16, CTC posted a net profit of Rs.1.98 billion, up from Rs.1.83 billion YOY. The earnings per share (EPS) improved to Rs.10.58 from Rs.9.79.

The net profit for FY16 also rose to Rs.12.56 billion from Rs.10.63 billion YOY. The EPS improved to Rs.67.05 from Rs.56.77. The company however said expenditure in FY16 was greater than that of the same period of the previous year as a result of a 10 percent increase in raw material costs due to the rise in imported tobacco leaf.