Investigation launched into cigarette tax compliance
The financial secretary said Friday an investigation will be launched after Guardian Business investigations unearthed questions regarding a Bahamian cigarette manufacturer compliance with tax laws relating to tobacco products.
Financial Secretary John Rolle said the fact that Palms cigarettes, produced by Freeport-based Caribbean Tobacco Enterprises (CTE), are being sold without excise stamps intended to show they have paid the necessary $3.25 per pack tax under the Excise Stamp (Tobacco) Control Act, “will be investigated”.
Guardian Business found unstamped packs of Palms cigarettes in several locations throughout Nassau on Thursday being sold at a steep discount on the average price for a pack of cigarettes.
Introduced last year, the Excise Stamp (Tobacco) Control Act is intended to raise revenue for the government by reducing smuggling of tobacco products.
The lack of stamps evidencing that tax was paid was reflected in the sales price of the products, with Palms on sale for $4 at a local supermarket, while its competitors Rothmans and Marlboro cigarettes sold for $7 and Aspen, $6.
Palms had earlier been accused of not paying the relevant taxes by tobacco giant, British American Tobacco (BAT) in a June 2, 2014, statement.
BAT said that by underpaying taxes, companies deprive governments of “legitimate revenue for national development”. It added that in the case of a tobacco company, this situation is made worse by the fact that cigarettes are highly susceptible to smuggling.
“It is estimated that The Bahamas is currently losing US$20 million annually, due to the illicit trade of tobacco products. This was the rationale for recent legislation requiring that tax stamps be
affixed on all tobacco products sold in The Bahamas,” said BAT.
When asked earlier this year if the company was paying taxes owed, Managing Director Stunce Williams told Guardian Business it was “paying what it is being billed” by the Department of Customs.
In a response to BAT’s earlier statement, Financial Secretary John Rolle had told Guardian Business that the law was indeed being applied “uniformly” with respect to manufacturers and importers of tobacco.
“The government has not agreed to any concessionary rate for excise for local manufacturers and no importer has sought an audience with the ministry on this matter,” he said in June.
Having had the matter of Palms cigarettes being sold in several stores without tax stamps affixed brought to his attention on Friday, Rolle said he would “definitely make some inquiries with the enforcement agencies”.
Guardian Business was unable to reach Department of Customs officials.
An industry source also revealed on Friday that it had recently received an official response from the government indicating that Palms and all other manufacturers “will be required” to apply stamps and pay the relevant taxes. However, this contradicts Rolle’s earlier statement suggesting that the government was under the impression that all importers and manufacturers were already in compliance.
John Wilson, chairman of New Providence-based Bahamas Cigarette & Tobacco Company (BCTC), accused the government of an “uneven application” of its excise tax policy earlier this week after it was claimed that Palms cigarettes still did not bear excise stamps, despite repeated government assurances to the contrary.
BCTC manufactures Seneca, DK’s and Putters brand cigarettes through a partnership with Canadian tobacco company Grand River Enterprises (GRE) and Wilson maintains he is struggling to survive as a company due to the application of the excise tax on his products.
Wilson is of the view that local manufacturers should be exempt from the tax under the Industries Encouragement Act and has sought to have the government agree to the same.
He had earlier stated the company was essentially operating to pay the government its dues while waiting for a government response. Wilson added that the jobs of BCTC’s 25 employees were in jeopardy over the tax inconsistency and that three employees had already been let go in the past two weeks.
Contacted on Friday CTE Managing Director Stunce Williams had no comment for why Palms cigarettes found by Guardian Business in several locations did not carry the excise stamps.
BCTC President and CEO Lionel Harris stated that, while he felt concessions should be provided to local producers, BCTC would continue to comply with the rules and regulations of the Excise Stamp (Tobacco) Control Act.
“We are advocating that we get some concessions, but as to not stamp our product, it’s a major violation, and we don’t want to be looked at as a…contraband-dealing company,” stated Harris.