NAIROBI, Kenya, Feb 26 – British American Tobacco (BAT) Kenya has said that the government’s decision to arbitrarily increase excise tax on cigarettes has led to a reduction in revenues paid to the government.
BAT Kenya Managing Director Gary Fagan told reporters on Thursday that the excise system, which last year saw 31 percent tax imposed on tobacco products, has been counterproductive and should be urgently reviewed.
“In the last 12 months, the business has seen an increase of about 60 percent in excise tax. This is not sustainable to businesses in this economic climate. The authorities need to introduce a sustainable excise regime for the industry,” he argued.
He disclosed that the cigarette manufacturer was holding discussions with the government on what implications this tax structure is having on the economy.
The company explained that experience the world over has shown that high excise structures led to the growth in illicit trade as people turn to smuggling, counterfeit products and tax evasion.
Mr Fagan added that the company also wants the government to ensure compliance with the Tobacco Control Act to ensure a level playing field for all players.
He complained that BAT had spent approximately Sh100 million since early 2008 to effect new packaging changes in order comply with the requirements of the Act, but their competitors continue to disregard the regulation.
The Act for example bars advertising and promotion of cigarettes and stipulates that the commodity should be sold in packets of not less than 10 sticks to make access to the commodity difficult, while the packets should carry bolder cautionary messages on the dangers of smoking tobacco.
The company also expressed its wish to see the Act, which places a blanket ban on corporate sponsorships by tobacco companies, amended.
“We are also committed to empowering the communities in which we operate and we look forward to finding solutions that are mutually beneficial to our obligation as a responsible business,” he added.
Mr Fagan spoke after the company released its financial results for the year ended December 31, 2008 where it announced a 21.4 percent increase in after tax profits to Sh1.7 billion.
The company’s Finance Director Lawrence Kimathi attributed this to their cost management program and the optimisation of their marketing and distribution system which saw the firm’s market share grow by three percent.
“Increased supply chain and production efficiencies coupled with prudent cost control initiatives ensured that the operational cost increase was well below inflation,” he boasted.
Mr Kimathi added that the company would this year invest more than Sh1 billion to upgrade their technology as they position themselves to remain competitive in the market.
A total dividend payout of Sh17 per share will be paid to the shareholders.