The total taxes paid by Ceylon Tobacco Company PLC (CTC), which holds a virtual monopoly on manufacturing and distributing of cigarettes in Sri Lanka, has increased year-on-year (YoY) and quarter-on-quarter (QoQ) despite the concerns that the higher taxes and recent price hikes could ultimately hurt the government revenue.
According to the interim financial accounts released by the company for the first quarter of this year (1Q17), CTC has paid Rs.23.8 billion as government levies—excise duty and value-added tax (VAT)— for the quarter, up from Rs.22.2 billion paid by the company in the same quarter of last year.
However, revenue from excise duty to the government fell to Rs.19.7 billion from Rs.22.2 billion YoY. But the 15 percent VAT introduced last November had covered for the shortfall with Rs.4.1 billion.
Also, on a QoQ basis, CTC’s tax revenue contribution to the government was up as in 4Q16 CTC paid only Rs.17.1 billion in total taxes.
Meanwhile, for the 1Q17, CTC recorded a net profit of Rs.3.2 billion, up from Rs.3.05 billion YoY. The company in a statement said the increase in profits was a result of curtailing its costs through the closure of two leaf depots and reducing factory shifts by a third.
Earnings per share for the period improved to Rs.17.07 from Rs.16.31. The directors recommend a first interim dividend of Rs.15 per share to be paid by May 30, 2017.
However, CTC in a statement said the significant price hikes in the fourth quarter of 2016 due to the excise increase in October and the introduction of 15 percent VAT in November resulted in volumes of 1Q17 decline by 29 percent YoY.
“It is anticipated that these price hikes will continue to impact both CTC volumes and government revenue from CTC during the remainder of 2017,” CTC
Yet, the gross revenue for the quarter improved to Rs.31 billion from Rs.29.5 billion YoY. CTC also paid higher income taxes of Rs.2.3 billion during the quarter compared to Rs.2.25 billion YoY.
However, the higher cigarette prices appear to have increased the smuggling activities as the authorities seized 35 million illicit sticks at a market value of Rs.1.7 billion during 1Q17. This, according to CTC, is a “significant increase”, since the price hikes.
CTC also stressed that the under-regulated and low-taxed products such as ‘beedi’ remain a key threat to government revenue from the tobacco industry due to the widening price gap between the cheapest legally manufactured cigarette and ‘beedi’.
CTC is Sri Lanka’s second biggest company, with a market capitalization of Rs.186.4 billion as of May 15, 2017. British American Tobacco Holdings (Sri Lanka) BV had an 84.13 percent stake in the company as of March 31, 2017.