KINGSTON: Carreras Limited, the large cigarette distributor, made higher net profit for its June first-quarter 2015 despite an increase in cigarette taxes. It also indicated that the company recovered $870 million in the quarter as a final tranche related to the resolution of a long-standing tax case.
Carreras made net profit after tax of $622.9 million on gross operating revenue of $2.6 billion for the quarter, or six per cent higher net income year on year. “As a result of the price increase implemented in March 2015 due to the increase in the excise rate…cigarette volumes for the first quarter experienced a decline when compared to the same period last year.
The company, however, anticipates that with the focus on its route-to-market strategy, to drive efficiencies through the supply chain and the authorities continuing their drive to contain the influx of illicitly traded cigarettes into the domestic market cigarette sales should continue to experience recovery throughout the rest of the year,” stated Managing Director Marcus Steele in statements prefacing the latest financials.
In March, Government announced an increase in the special consumption tax on cigarettes from $10.50 to $12, set to raise $488 million as part of wider measures to raise $10.3 billion for the budget.
Government previously initiated an increase on this product in January 2010 where there was an increase from $8.50 per stick to $10.50 per stick.
The Government indicated that the latest price rise was aimed at meeting its revenue considerations, while also adhering to its obligations as a signatory to the World Health Organizations’s Framework Convention on Tobacco Control (FCTC). Carreras sales took a notable hit in 2013 when the Government implemented a smoking ban in enclosed spaces under the Public Health Tobacco Control Regulations.
The Government announced plans to implement a second phase of tobacco restrictions, which could include a ban on tobacco advertising, promotion and sponsorship.
The timeline remains unspecified, but it forms part of the FCTC ratified by Jamaica in 2005. Carreras ceased media advertisements years ago but continues to promote and sponsor events geared at adults. Carreras was awarded over $3.5 billion in a legal fight with Tax Administration Jamaica (TAJ), and was paid in tranches following an agreement in December 2013.
As at March 2015 a balance of $870 million remained. “During the period the TAJ refunded to Cigarette Company of Jamaica (CCJ) by issuing offsets against the estimated tax liability of Carreras Ltd the full amount of $870 million,” stated the June quarterly financials.
In 2004, CCJ, a Carreras subsidiary, received assessments for income tax claimed by the tax authorities for the years 1997-2002 amounting to $5.68 billion, including penalty and interest. The CCJ appealed the assessment, but while the appeal was in progress it paid $1.73 billion to the tax authorities.
TAJ filed an appeal to the Privy Council, and on March 13, 2012, after a volley of judgments and appeals in lower courts, the Privy Council handed down its decision dismissing the appeal of the TAJ with costs to the Cigarette Company.
