Taxes burn Carreras

Cigarette company says high levy helping to grow illegal tobacco trade

BY ALICIA DUNKLEY Senior staff reporter dunkleya@jamaicaobserver.com

Tuesday, May 31, 2011

GOVERNMENT, by virtue of the more than 100 per cent increase in taxes on tobacco products over the last three budget years, has facilitated the boom in the illicit cigarette trade, according to managing director of Carreras Jamaica, Richard Pandohie.

Pandohie, who was addressing Observer editors and reporters at the newspaper's weekly Monday Exchange in Kingston yesterday, said while there might have been a legitimate cause for the tax hikes, major players in the black market have been able to avoid taxation, making it easier for them to undersell legitimate traders and flood the market with contraband and counterfeit goods.

He said the taxes have been in part due to a World Health Organisation call for huge increases in excise as well as the Government's need for budgetary support.

"What they have now created is a very thriving, vibrant, active, illicit trade industry. That's the unintended consequence. If you are going to raise taxes like that you need to put other measures in place like border control and enforcement," he contended.

"... So the Ministry of Health is losing because smoking hasn't gone down, and the legitimate industry is losing because our volumes are going down. We estimate that the counterfeit and contraband trade accounts for over 40 per cent of the market," Pandohie said, noting that Carreras's 98 per cent coverage of the legal industry "has shrunk dramatically".

"The legal industry would have seen their volumes drop dramatically, in our case over the last three years a 38 per cent decline in volume. However, the smoking incidence of tobacco in the country has not changed," he said.

Furthermore, he said the situation was made worse as most persons tended to see the sale of contraband as an 'annoyance' but not as a major crime.

"To put it in context, for every three packs of cigarettes Carreras sells, two are for Government, one is for us. So the biggest stakeholder, the biggest earner out of the industry is actually Government. We are number three in terms of the industry that is the most heavily taxed in the country," Pandohie added.

Yesterday, United Nations Secretary General Ban Ki-Moon in his message marking World Tobacco Day, being observed today, said the greatest tool in its arsenal is the WHO Framework Convention on Tobacco Control which, since it was opened for signature in 2003, has seen more than 170 countries becoming parties, making it one of the most rapidly embraced treaties in United Nations history.

He said from reducing demand through higher prices and taxes to restricting advertising and sponsorship, from warnings on packages to prohibitions against sales to minors, countries are using the treaty's provisions to protect their citizens.

"They are sending a clear message that tobacco use makes us poorer — in health and economic terms," he said.

The UN secretary general said the treaty's comprehensive defence against industry tactics includes measures to reduce the illicit trade in tobacco products, address issues of liability, support economically viable alternative crops and protect public health policies from undue pressure.

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COMMENTS (7)

critical thinker
5/31/2011

This is what happens to all things economic in Jamaica when we allow other people (The UN or EU) to write laws for us. I think the codeword for 'colonialism' these days is "international regulation" ----- where one set of [white] people write laws for all other people. And Jamaica has been an active 'partcipant' in this detrimental foolishness year in year out. Ostensibly, to feel like we belong to some mirage called 'international community'. We 'belong' but have no voice in this 'community'.

Better Must-Come
5/31/2011

This quote by Pandohie sums it up "So the Ministry of Health is losing because smoking hasn't gone down, and the legitimate industry is losing because our volumes are going down." I wonder why Pandohie is concerned about the MOH objective of bringing down smoking since this runs counter to his company goal? Is he saying that he knows that cigarette is detrimental to one's health but he is going to sell his poison anyway?

Jerry Berman
5/31/2011

What we need in our country are laws which come with some serious penalties for individuals, groups or companies caught illegally importing products. If we attached penalties of losing your business and/or business license, tax penalties of 10X the cost of the goods and other draconian penalties for evading custom duties you will see how quickly this practice is wiped out. We also need to deport those non-Jamaicans business operators are using their overseas connections to flood our country with counterfeit goods and pharmaceutical products.

Paul Gentles
5/31/2011

The end user is paying no less than the carreras price so only the black marketeers benefit by greater profit margins.
Tax goes up on cigarettes world wide - the fallout is the govts making in not protecting private investors. If instruments of death and destruction (guns and bullets) so freely find themselves in Ja....until accountability is implemented voices will be just sounds in the night.

Paul Gentles
5/31/2011

I beg to disagree that taxes "burnt" carreras - the porousness of our borders (ports) allowing the black market to thrive is what is really hurting. The tax ratio compared to their actual market share has only exarcerbated their problem.Where they are based one can almost safely assume that they also have a heavy "unofficial" (extortion) tax bill to pay as well. Message to the private sector....be careful what you wish for...

nervous investor
5/31/2011

I am torn. On one hand I want to agree with the comment by One Jamaica. On the other I believe in free markets. Yet I do not like domination by any over strong entity (Government or excessively large company). I hate laws for the sake of creating laws. Laws should be the minimum necessary to ensure a peaceful community. I believe in Freedom; I do not like being a slave to some arrogant idiot's opinion of what he (or she) thinks is best for me. I am torn.

One Jamaican
5/31/2011

The health ministry is a joke. What they should do is ban smoking in public places. But are they really concerned about preventing helth issues. Anyone selling illegally imported cigarettes should be treated like they are importing illicit drugs. Tobacco use is a leading killer worldwide. When are we going to treat it as such

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Taxes burn Carreras