Does Shaw's Tax Policy Enable Cigarette Smugglers? Carreras Says It Might

Company revenue fell seven per cent to J$3.47 billion in the quarter ending December 2010, while net profit dropped 16 per cent, from J$849 million or J$1.75 per share to J$714 million or J$1.47 per share, reflecting both declining sales and a 38 per cent erasure of investment income as yields fell on paper securities.

The cigarette distributor has blamed the contraction in its business on both Finance Minister Audley Shaw's heavy application of excise tax policy, as well as unchecked trading in smuggled and counterfeit brands, but went further in its latest earnings report to infer that one might be serving to facilitate the other.

"The company remains deeply concerned at the impetus and fillip that could be given to the illicit trade in cigarettes if the Government were to continue an excessively high and very frequent approach to the levying of taxes on the industry," said Carreras chairman Christopher Burton.

"Our volumes will continue to be challenged going forward," he said.

The company's new boss, managing director Richard Pandohie, said Wednesday that Carreras is losing market share to illicit traders at a faster rate now, after two tax hikes since 2009. He said 40 per cent of Carreras' business has been captured over three years, 26 per cent, in the last year alone.

"Tax policy, in isolation, is helping to drive illicit business," he said. "We are asking Minister Shaw to relook his strategy."

Meanwhile, in a touch of irony, while Carreras' various obligations to the Treasury hit J$9 billion last year, it is yet to collect on the J$1.73 billion that the courts ordered returned to the company in February 2010, in reversal of a previous judgement handed down against its manufacturing subsidiary Cigarette Company of Jamaica, which is being wound up.

The company said it is yet to even receive an acknowledgement of its claims for refund.

The tax authorities are appealing the ruling.

Carreras, in the past two quarters, has stepped up its criticism of Government, saying it was concerned about the sustainability of its operation in the face of a mounting multibillion tax bill. Pandohie later said, when asked to clarify the company's position, that Carreras was not considering and had no intentions of pulling from the Jamaican market.