The Tribune

By NATARIO McKENZIE

Tribune Business Reporter

nmckenzie@tribunemedia.net

Graycliff was yesterday locked in ‘make or break’ talks with the Ministry of Finance, having disclosed to Tribune Business that it would stop selling its trademark cigars locally if the Government did not amend its new Excise Tax policy.

Paolo Garzaroli, Graycliff Cigar Company’s president, warned the company would likely have to limit, or discontinue, manufacturing cigars for the Bahamian market if it could not reach a compromise with the Government with over its Excise Tax.

He added that under the Government’s existing plans, set to be implemented on March 1, 2014, Graycliff would face a $4-$6 tax per cigar at the manufacturing level alone.

Attempts to reach Mr Garzaroli about the outcome of yesterday’s scheduled meeting were unsuccessful up to press time. But, prior to that, he told Tribune Business: “With this new Excise Tax, it’s very difficult to make cigars locally and sell them locally. It’s going to be very difficult.

“With the tax that they want to put on us, it’s definitely going to cause us to purchase cigars from somewhere else if we can’t work out a compromise. Right now, we are between $4-$6 a cigar tax; that’s at the manufacturing level, not at the retail level.”

Mr Garzaroli said that if the Government’s Excise Tax policy remained ‘as is’, it would force Graycliff to effectively become an export manufacturer only.

“I have told them that if they do that, I will be only be making very limited quantities for the local market,” he told Tribune Business.

“They want to implement it on March 1. We’re not going to be leaving, but we will only be making cigars for export. They’re making it extremely difficult for us to manufacture cigars for the local market. They keep telling me that they don’t want to put me out of business, but with the tax that’s what it’s looking like. Even if I just sell it to a retailer that becomes at least an $8-$10 increase in price.”

Mr Garzaroli’s concerns echo those of  prominent attorney John F. Wilson, the Bahamas Cigarette and Tobacco Company’s (BC&T) chairman, who in a recent interview with Tribune Business questioned whether his tobacco manufacturing start-up would be fully exempt from Excise Tax on domestic sales.

British American Tobacco (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.

Mr Wilson last week argued, however, 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. Mr Wilson said his employee hires could be “significantly impacted” if no Excise Tax exemption on domestic sales was forthcoming.

 Simon Wilson, deputy financial secretary in the Ministry of Finance, yesterday told Tribune Business that the Government was simply stepping up compliance with respect to the Excise Stamp Control Act, beginning on March 1.

“What we have seen is an increase in businesses being registered as tobacco  importers/manufacturers,” he said via e-mail. “In some cases these businesses have been  operating for several years undetected.

“On the issue of local manufacturing, we have also seen an increase,  with two new manufacturers in Grand Bahama and one in New Providence.  While this is not something we are proud of, given the public health  concerns about smoking, it undermines any argument about the Excise Stamp Control Act being bad for business.”

Parliament passed the new Excise Stamp (Tobacco Products) Control Act  last April, with a view to stemming the leakage of an important national revenue source. Tax evasion and avoidance have led to the growth of illegal trafficking in brand-name and counterfeit cigarettes, cigars and other tobacco goods. 

The Government expects the new legislation to produce an additional $20 million for the Public Treasury.  While chewing tobacco is duty free, duty on fine cut tobacco is 210 per cent; cigars 200 per cent; and cigarettes 210 per cent, plus a 7 per cent Stamp tax.  

The  Government has sought   to register  all  importers  or  producers  of  tobacco  products in the Bahamas, and require them to affix an Excise Stamp to their goods as confirmation that due tax has been paid.