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Carreras: Gov't tax feeding growth of illicit cigarette trade

BY BALFORD HENRY
Senior staff reporter
balfordh@jamaicaobserver.com

Friday, November 10, 2017

CARRERAS Limited, leading marketer and distributor of cigarettes in Jamaica, says that a $3 increase in the Special Consumption Tax (SCT) in the 2017/18 budget has contributed to a massive spike in the illicit trade in cigarettes.

Managing Director Marcus Steele told a press conference called by the company to raise the issue at its Ripon Road office in Kingston yesterday, that this is demonstrated by a decline in Carreras' sale volumes, and warned that it could also affect the Government's tax revenues from the industry by $1 billion more in 2017/18.

Steele said that this is serious, because the Government has been losing over $2.6 billion per annum, prior to the $3 per stick increase in March.

“So if you add the loss of revenue of $1 billion, you are talking of over $3 billion that the Government is losing,” he added.

He said that in Kingston and St Andrew alone, the illicit trade has grown since the introduction of the additional taxes, from 25 per cent to 54 per cent.

In the rural areas, it has grown from nine per cent to 28.5 per cent in St Mary; in St Thomas, from six per cent to 17 per cent; and, in Clarendon it has climbed from 8.4 per cent to 15 per cent.

He described the illicit trade as a “free for all” that has no structure or standard.

Steele also claimed that the illicit trade is also linked to criminal activity in Jamaica. This point was reinforced by a representative of the Counter Terrorism and Organised Crime branch, Superintendent Anthony McLaughlin, who informed the press that the criminal underground was “deeply involved” with the trade in illicit goods, including cigarettes.

However, he said that the police has been experiencing “relatively good success” in terms of its investigations, with 80 per cent of its cases this year already cleared up by convictions, and the branch is confident that the other 20 per cent will experience similar success.

Steele also cautioned that indications by Minister of Health Dr Christopher Tufton, to introduce comprehensive tobacco control, which entails measures such as prohibiting interaction between the industry and Government officials, as well as a total ban on tobacco advertising, promotions and sponsorships, and the proposal for further increasing excise, has caused much concern.

This is the third occasion this year that Carreras has complained of rapidly losing market to illicit cigarette traders, including raising the issue in its 2016/17 annual report in August.

“I can tell you that for every $1 per stick increase in the excise, is a dollar profit for the illicit trade and that is an important point for the Government to understand,” Steele told the press.

He said that the illicit trade would not only pose a direct threat to the Government's revenues, but it also challenges the Government's health and tobacco control agenda.

He said that the rapid shift in sale volumes to the illegal industry would cause the Government great difficulty concerning the regulation of the product, protecting minors and ensuring requisite quality standards.

On the tobacco control issue, he said that Government agencies like the National Health Fund would also be affected by the growth in the illicit trade and reduced revenues from taxes.

“We respectfully caution the Government, that if the proposed measures are not carefully considered and crafted, they will only serve to add to the sustenance and expansion of the illicit trade in cigarettes, which poses a further threat to the sustainability of the revenues derived from tobacco, and from which neither the consolidated fund nor the National Health Fund will benefit, as well as severely impacting the Government's efforts to regulate the product,” Steele warned.