Red Stripe saw annual earnings fall by 49 per cent over the financial year ending June 30, following what the company says are tax inequities, increased competition and lower consumer disposable income.

Indeed, the firm saw its bottom line tumble by 84 per cent in the fourth quarter, a miserable end to a dissapointing financial year for the beer manufacturer.

In a statement to shareholders, Red Stripe managing director Alan Barnes noted that 2010 was “a challenging one for the Red Stripe business”, noting that the difficult environment, which includes the tax inequities, has contributed to the “decrease in volumes”. Red Stripe is involved in the brewing, bottling and distribution of beers and stouts, including the popular Red Stripe and Dragon brands and spirits such as Smirnoff and Baileys and is a subsidiary of the United Kingdom based Diageo PLC.

“Our brands continue to be highly visible through advertising and marketing spend, however we are yet to see the upturn in domestic beer volumes,” he said.

Total marketing costs for Red Stripe increased to $1.49 billion year on year, $876 million of which was spent in the domestic market.

“The increase over the same period last year reflected our strategy to maintain investment behind our core brands and innovation,” said Barnes. He also pointed to an $80 million increase in export marketing costs for the year as a result of the launch of Red Stripe Light in the North American market. Advertising of the brew was done during the US Superbowl global football showcase this year.

However, despite attempts to increase volumes in overseas markets, Red Stripe is still reeling from the effects of what Barnes calls “the discriminatory SCT (Special Consumption Tax) regime” that sees the company pay a tax on the alcoholic beverages its produces.

SCT is a tax on prescribed goods, including petroleum products, tobacco products and alcoholic beverages with the tax rates varying according to whether the item is manufactured in Jamaica or imported. The SCT rates were adjusted by the Government of Jamaica (GOJ) last year in an attempt to raise more revenue for its coffers.

Under the SCT, the tax on stout beer (Guinness) rose from 16 per cent to 25 per cent or approximately $8.97 per bottle. The tax on Red Stripe, Smirnoff Ice and other beers increased from 21 to 25 per cent, or approximately J$3.59 per bottle. The tax on the majority of spirits increased from 24 per cent to 25 per cent.

However, Red Stripe claims that the tax should accrue based on the amount of the alcoholic content of the drink.

“Red Stripe Light now pays 1,000 per cent more tax than an average tonic wine; this inequity has severely impacted us,” Red Stripe’s managing director Al Barnes is reported to have said earlier this year.

As a result of lower tax rates on tonic wines, Red Stripe bosses claim that the brew has lost market share to its competitors who therefore have lower priced products. the upshot is that net sales value was down five per cent year on year.

“White rum has an alcohol content of 63 per cent. A light beer has a content of only 3.7 per cent, yet we are being charged 10 times that amount. The disparity on taxation is even greater when you compare light beer with tonic wines. It should be tax advantageous for a low alcohol product, not the other way around,” said Red Stripe’s financial director Allan Hood earlier this year.

SCT on Red Stripe products grew from $1.8 billion at the year ended 2009, to $2.23 billion at the June 2010 year end.

Cost of sales also increased by 4.4 per cent year on year despite efforts at production and cost efficiencies. Barnes said these were “insufficient to offset the impact of lower volumes and increased raw material prices brought on by the devaluation of the Jamaican dollar”. The increase in cost of sales was also as a result of the company leasing new trucks to strengthen its domestic route to market operations.