The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A Bahamian-owned tobacco manufacturing start-up yesterday said it was targeting $5-$10 million in first year gross sales, but warned this and employee hires could be “significantly impacted” if no Excise Tax exemption was forthcoming.

John F. Wilson, Bahamas Cigarette and Tobacco Company’s (BC&T) chairman, told Tribune Business that the entire business model was based on its registration under the Industries Encouragement Act (IEA) translating into full exemption from the 220 per cent Excise Tax.

While arguing that this “simply makes good sense” to foster Bahamian-owned, and based, manufacturing start-ups, Mr Wilson said the Government had yet to confirm whether BC&T would be exempt from a tax that would add $3 to the price of its cigarette packets.

The McKinney, Bancroft & Hughes attorney and partner added that BC&T should start producing product for sale by early April at latest, envisaging an operation that could ultimately span four islands and 200 employees.

“We’re good to go, but we still have to deal with this issue of whether we will be fully exempt from the Excise Tax on domestic sales,” he told Tribune Business.

“Ourselves and Caribbean Tobacco, which are now the two local manufacturers, both have been registered under the Industries Encouragement Act, which gives us certain savings on import duties; we’re exempt from paying that.

“Given that we have that exemption, we expect it to apply to the Excise Act. There’s no reason in principal why we should be treated the same as British American Tobacco (BAT).”

BAT and other foreign tobacco manufacturers, who sell imported product into the Bahamian market, have already argued that domestic manufacturers should not be given preferential tax treatment, citing World Trade Organisation (WTO) rules on ‘national treatment’ to support their case.

However, Mr Wilson yesterday argued that there was a strong case for the Bahamas to support local start-ups and fledgling industries, given the jobs and domestic economic impact they created.

Pointing out that BC&T would generate utility bill payments, Business Licence fees, National Insurance Board (NIB) contributions and multiple spin-offs for the Bahamian economy, Mr Wilson said the Government’s position on whether Excise Tax would apply to the company’s domestic sales was still uncertain.

“It’s unclear because we’ve not received a definitive statement one way or another,” he told Tribune Business.

“We would expect the Government, in its wisdom, to extend the savings conferred under the Industries Encouragement Act to the Excise Act. It simply makes good sense.

“We would expect in the first instance that we should be provided with the entire exemption as contemplated by the Industries Encouragement Act. That’s what it’s there for; to encourage industry.”

Asked what would happen to BC&T if the expected tax exemption did not materialise, Mr Wilson said: “I think the impact would be significant. It would most certainly affect the number of employees we hire, the number of people we put on staff.

“It will have a significant impact if we have to hit the ground and compete with the likes of Rothmans, Marlboro and Dunhill one to one.”

The BC&T chairman explained that it was crucial for his start-up to have a “price competitive advantage” against powerful, more-established foreign brand rivals at the start. There would be no comparison if its brands were forced to sell at the same price.

Mr Wilson likened the situation to the liquor industry, where domestic manufacturers, Bahamian Brewery & Beverage Company and Commonwealth Brewery pay $2 and $5 in duty per liquid gallon on domestic beer sales, and foreign imports face a $10 rate.

Focusing on BC&T’s business model, Mr Wilson told Tribune Business: “Domestically, we’re projecting that we can do between $5-$10 million in gross sales in the first year.

“Those projections have been based on us being exempted. When I started doing the model and investigated getting into this business, it was all on the back of the competitive advantage we should have under the Industries Encouragement Act.

“If they take that away, it does change the playing field, the dynamics.”

The BC&T chairman added: “I’m quite entrepreneurial. I’m always looking at ideas, and looking at what one could get into.

“When I realised how the Bahamian local market was saturated with foreign products, and the Bahamas was one of very few in the region that did not manufacture its own product, I started to see this might be a very good venture if we could get it licensed under the Industries Encouragement Act.

“It’s something that has very good prospects of succeeding if we keep going. The end game is to have a business and company that ius between Nassau, Andros and one or two other islands, and have 200 Bahamians employed.

“Given the way the economy is now, it’s important to develop new industries, and this is one of them.”

BC&T is aiming to launch a growing programme for its tobacco raw material on Andros, and will manufacture product under licence from Canadian cigarette manufacturer, Grand River Enterprises (GRE).

It is targeting both the Bahamian market and export sales, first in the Caribbean and then possibly Europe, using the potential benefits of the Economic Partnership Agreement (EPA).

BC&T is currently outfitting its factory plant at the former Bacardi plant, now owned by Source River, and anticipates that its first tobacco raw material order will arrive at Nassau’s dock “within the week”.

Mr Wilson said one production line was already set up, and technicians were now installing the second.

While the start date for Bahamian employees had been pushed back by construction delays, Mr Wilson said “a portion will start on the job within two weeks”.

He added that 10 would be needed to assist with testing the production lines, and the BC&T chairman added production for sale should begin by mid-March or early April at latest.