Ceylon Tobacco Company PLC (CTC), the local unit of British American Tobacco, increased its September quarter net profits (3Q16) by a little over 38 percent to Rs.4.56 billion from a year ago as the volumes remained relatively stable, the interim results released to the Colombo Stock Exchange showed. The earnings per share rose to Rs.23.87 from Rs.17.58. The CTC share ended 80 cents or 0.09 percent up on Friday to close at Rs.856.80 with a total market capitalisation of Rs.160.5 billion, second only to John Keells Holdings PLC. The revenues during the quarter grew by 32 percent on year to Rs.39.5 billion but the taxes and levies absorbed as much as Rs.30.2 billion leaving with a net revenue of Rs.9.2 billion.
During the first nine months such taxes and levies amounted to a thumping Rs.75 billion, up 20 percent from the same period last year. This is besides the Rs.7.2 billion provided on account for income taxes for the nine months. Meanwhile, the government last week proposed to continue with the 40 percent income tax rate applicable on the sin industries, which include liquor, tobacco, betting and gaming. In the wake of increased prices of fags in October and November, it is uncertain as to how the revenues would play out. Price of CTC’s top seller rose to Rs.50 from Rs.35 during these two months. Even though the policymakers continue to treat revenues from tobacco as inelastic, the economists argue that there is a point at which revenues start falling. They caution that the prices may have now reached that trigger point and any further increase in prices could dent the tax revenues from the industry. Further, excessive taxes on legal tobacco and alcohol beverage industries could also open up avenues for illegal substitutes across the country which are not only just more hazardous to the health but also pay less or no taxes to the government.
“A total of 1,131 raids uncovered 2.5 million illegal cigarettes at a market value of Rs.89 million during the first nine months of 2016. However, under regulated and low taxed products such as ‘beedi’ still remains a key threat to government revenue from the tobacco industry,” the company said in its earnings release. Meanwhile, during the nine months to September 30, the company made a net profit of Rs.10.67 billion or Rs.56.47 a share, up 23.2 percent from a year ago. The company has proposed to pay a dividend of Rs.16 a share payable on November 30, 2016. As at September 30, 2016, British American Tobacco Holdings (Sri Lanka) BV held an 84.13 percent stake in the company.