Carreras Limited will launch two cigarette products next month, a new local brand called Turf and the internationally known Pall Mall, aimed at combating the illicit cigarette trade that is reported to have cost the country more than J$1 billion in lost taxes over a year.
The cigarette distributor also hinted that it may start manufacturing cigarettes in Jamaica once again, but any such move appears to be a decision to be made in the long term.
"The idea is to bring a more affordable option to consumers who have moved away to buying the cheaper illicit cigarettes," said Carreras Managing Director Richard Pandohie at a briefing in Kingston Thursday.
The cigarettes will sell for about J$25 per stick compared to J$30 per stick for existing brands, including Matterhorn and Cavern A sold by Carreras.
Pandohie, however, admitted that illicit cigarettes would still sell cheaper as they avoid the special consumption tax and general consumption tax that works out to J$15 a stick.
The two cigarette products to be added to Carreras portfolio contain brightly golden cured tobacco, a popular style called Virginia blends named in recognition of the US state where it was first cultivated.
Pall Mall is owned by Carreras' parent British American Tobacco Plc and Turf is owned by Carreras. Turf, like Pall Mall and other BAT brands, will be made in Trinidad - at sister company West Indian Tobacco - and both will be imported for distribution in Jamaica.
Pandohie said, however, that Carreras would support local farmers who are replanting tobacco, test for quality, and eventually determine whether to restart cultivation and manufacturing locally.
Carreras ceased local manufacturing in 2005 in favour of importing finished cigarettes from Trinidad and sold off all non-core assets to focus on cigarette distribution. It remains one of Jamaica's most profitable stock market companies, notwithstanding what Carreras has called out as burdensome excise taxes.
Most recently, Carreras posted a 53 per cent rise in net profit to J$805 million on J$3 billion of sales for its June first quarter. The rise was due to a spike in pre-budget sales on expectations of higher taxes on cigarettes that never materialised, as well as exchange rate gains and a rise in investment income.
"As impressive as these results are, we are convinced that with a sustained and vigorous campaign against those engaged in the illicit trade, we would have increased our profit margins and as a consequence reward our shareholders with a better dividend, and contribute more substantial revenues to the government," said Pandohie last Thursday.
The company, which works collaboratively with the police to combat smuggling, commended the law enforcers for their stepped-up drive against counterfeit and contraband cigarettes, which avoid import taxes.
Pandohie said that the Government lost J$1.4 billion in potential taxes due to the impact of the illicit trade on Carreras during the last financial year ending March 2012.
However, the first quarter showed a rebound in taxes that, if maintained, will eliminate that deficit.
"The records show that there is a correlation between the success in the drive against the illicit trade and the healthy returns to government revenues. As a result of the inroads being made in stemming the illicit trade, government revenues for the current quarter from specific tax have increased by $405 million compared to the corresponding quarter last year," said the cigarette trader about the rise in taxes which when annualised towers over J$1.6 billion.
"The experience also points to the sobering fact that by more effective law enforcement, the Government can significantly increase tax revenues without resorting to additional tax measures," he said.