Home' Trinidad and Tobago Guardian : November 14th 2013 Contents NOVEMBER 2013 • WEEK TWO www.guardian.co.tt BUSINESS GUARDIAN
COMMENTARY | BG3
Chief editor-business: ANTHONY WILSON
Editing and design: NATASHA SAIDWAN
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Last week, when people heard or
read that the West Indian Tobacco
Company Ltd (Witco) had
increased the recommended retail
prices of all the cigarettes it sells,
most of them would simply have smiled to
There they go again, would have been the
common internal thinking, as smokers and
non-smokers would have recalled that this
was the second time for the year that Witco
had hiked prices.
The question that the population should be
asking itself is whether Witco is taking advan-
tage of its dominant position in the regional
cigarette market to impose profit-gouging
increases on smokers.
Locally and internationally, most manufac-
turing companies in competitive markets seek
to increase efficiency and productivity before
they increase prices.
But because Witco produces more than 90
per cent of the cigarettes sold in this country,
it has concluded that it can pass on increases
in the commodity price of tobacco to its cus-
tomers, twice a year. Of course, when the price
of tobacco declines on the international com-
modity market, no one should expect a com-
mensurate decline in the price of the prod-
Put another way, if Dominic Hadeed, who
officially opened a new bottling plant for soft
drinks and water in Trincity on Sunday, con-
trolled more than 90 per cent of T&T s soft
drink market, he would be in a position to
increase the price of his product whenever
the price of plastic or syrup goes up.
But Mr Hadeed cannot do that because the
local soft drink market is intensely competitive.
What he has done, instead, is to invest millions
of dollars in a new, state-of-the-art, compet-
itive plant that, I am sure, has driven down
his unit cost of production to below his closest
One wonders whether the Caricom Com-
petition Commission, which was headed up
to recently by UWI academic and attorney
Kusha Haraksingh has ever looked into the
manner in which Witco operates.
Among the main functions of the commis-
• To apply the rules of competition in respect
of anti-competitive cross-border business
• To monitor anti-competitive practices of
enterprises operating in the Caribbean Single
Market and Economy
• To promote and protect competition in
In an interview in April, Witco s managing
director, Jean-Pierre du Coudray defended the
February increase in the price of cigarettes,
insisting that the company was only passing
on some of the increase in the cost of tobac-
co.Du Coudray said: "It (the price increase)
has affected sales, but not significantly. I think
our customers understand that tobacco is a
commodity item. The price of that commodity
is in line with global demand and supply and
"In 2012, we received a 14 per cent increase
in our material costs and we ve had to pass
on some of that costs. In fact, the price increase
we took is only a 4.5 per cent. We thought it
was quite moderate."
Du Coudray also denied that Witco s dom-
inance of the local cigarette market gave it a
virtual monopoly: "No, we are a market leader
because it is an open market. Competition is
free to come and they have come. We have
no problem with competition. We welcome
it because it puts us on our toes."
This is not to say that the way to treat with
Witco s apparently non-competitive business
practices would be to engineer increased com-
petition in the local cigarette market.
Most people agree that the fewer cigarettes
sold in this country, the better.
Which is why it is possible to argue that
Witco is doing the country a big favour by
increasing the price of its products.
Maybe the Government should put measures
in place to follow Witco s lead, by adjusting
the quantum of excise duty on tobacco prod-
ucts whenever the company increases the price
of the product.
It is my understanding that Section 13(2) of
the Excise (General Provisions) Act, Chap.
78:50 allows the Minister of Finance to do
just that by issuing an Order to "impose any
new excise duty or increase any excise duty
and from the date of publication of the Order
in the Gazette and until the expiry of the Order
the duties specified in the Order shall be
payable in lieu of the duties payable prior
That s an extract from the Excise Duty
(Tobacco Products) Order, 2009, which was
part of the legislative framework the last time
the excise duty on tobacco products was
In the 2010 budget, former finance minister
Karen Tesheira announced that the government
would increase the excise and import duty on
tobacco products "of common market origin
and the tobacco tax on extra regional tobacco
products, all by 15 per cent."
The point needs to be made that while
Witco may be one of the largest non-energy
taxpayers in this country, it should be encour-
aged to contribute more taxes...much more.
If Witco feels that it can increase the price
of cigarettes twice a year---safe in the knowl-
edge that those who have become addicted
will continue purchasing it---maybe it s time
for the Government to consider doubling the
rate of excise duty imposed on cigarettes sold
I am fairly sure there would be a sharp
decline in the number of smokers, if the price
of a pack of cigarettes was increased to $50
and $55 from $23 and $25 as a result of a
much higher excise duty.
Increasing the level of excise taxes on Witco,
therefore, will not only improve the Govern-
ment s fiscal picture, it will also improve
T&T s public health picture.
This is not to say that the cigarette company
is not already a good source of tax revenue.
It is. On turnover of $1.1 billion in 2012, Witco
contributed a total of $365.7 million to the
Treasury, comprising $239.5 million in excise
duty and $126.2 million in corporate taxes.
Witco is also a very profitable company
and will be even more profitable as a result
of the price hike.
In its financial year ending December 31,
2012, the cigarette producer declared an audit-
ed after-tax profit of $350 million, which was
a 20 per cent increase over the $290.2 million
profit the company reported in 2011.
The company s after-tax profit increased
by 20 per cent, although its gross turnover
only increased by ten per cent.
By my reckoning, Witco s profit margin---
which is calculated by taking a company s
after-tax profit and dividing it by its
turnover---was 31.6 per cent in 2012, an
increase compared to the 28.8 per cent margin
Still, Witco was something of a slacker
compared with the 37 per cent profit margin
that its parent company British American
Tobacco declared in 2012.
While Witco s product may not be good
for its customers, the company itself is very
good to its shareholders, distributing $3.82
in dividends for 2012. This dividend payout
represents nearly 92 per cent of the company s
earnings per share.
For the first three quarters of 2013, Witco
has already paid out $2.93, which means that
with the price increase, the company is well
on course to surpass its 2012 distribution.
Witco shareholders, as well, have benefitted
from significant capital gains for this year
with the company s share price increasing
by 41 per cent between the start of the year
and last Friday, moving to $120 from $85.
The Government should also consider rais-
ing the smoking age in T&T to 21, as the
New York City Council voted to do late last
month--- a move that would make the city
among only a handful in the United States
to target young smokers by barring them
from buying cigarettes.
New York also approved a bill that sets a
minimum US$10.50-a-pack ($67.72) price
for tobacco cigarettes.
Smoking may be a bad habit---but New
York City lawmakers want their residents to
be older and wiser before deciding to take it
up, according to an AP report.
Jean-Pierre du Coudray, managing director of Witco
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