Thursday, June 14, 2018

Industrialists hope coming budget to be friendly to smokers

A November 2015 study on affordability

A November 2015 study on affordability conducted by Japan Tobacco International in 25 cigarette markets around the world showed that cigarettes produced in Tanzania are the most expensive for smokers. PHOTO|FILE 

By Alex Malanga @ChiefMalanga

Dar es Salaam. It is the expressed wish of the Confederation of Tanzania Industries (CTI) to see that tobacco smokers in Tanzania will not have to dig deeper into their pockets to finance their ‘smoke-blowing’ pleasure in the 2018/19 financial year that begins next July 1.

In a proposal which CTI submitted to the Finance ministry’s special task force on tax reform for its consideration, the Confederation calls on the government to retain the current three-tier excise duty structure in the FY-2018/19 budget – while maintaining the 75 per cent domestic tobacco requirement.

The proposal is intended to help maintain consumer affordability.

‘Affordability’ is measured as the price per pack of 20 cigarettes as a percentage of the average daily disposable income – which currently stands at about 60 per cent. This means that average consumers would have to spend 60 per cent of their daily disposable income on a pack of 20 cigarettes.

Going by a November 2015 study on affordability conducted by Japan Tobacco International in 25 cigarette markets around the world, the cigarettes that are produced in Tanzania are the most expensive for smokers.

As a result of the high cigarette prices relative to prices in export markets such as Zambia and DR Congo, illicit trade in tobacco products in Tanzania increased from 2 per cent in 2010 to about 10 per cent in 2015.

This undermines both domestic sales revenue for the manufacturers, and tax revenue for the government.

Assuming that the illicit trade in 2015 was 10 per cent of the legal market for cigarettes in Tanzania, then the estimated tax revenue loss to the government was Sh21 billion.

By parity of reasoning, if the illicit trade declines from 10 to 5 per cent, the government could generate an extra Sh10 billion in tax revenue for the year.

In any case, should the prices be maintained – or, even better: slashed – this would encourage production, leading to increased sales, profits and tax revenues.

According to CTI, the Tanzania Cigarette Company (TCC) factory has an installed production capacity of 10 billion cigarettes per year.

But it currently produces at only 80 per cent of its capacity, whereby 5 billion cigarettes are for the domestic market, with the remaining 3 billion being for export.

In that regard, a somewhat lower excise duty would lead to full production capacity utilization – which could encourage more investments in the industry.

Noting that TCC has invested over $100 million (about Sh223 billion) in plant, machinery and other business activities since 1999 to date, the Confederation stated that this has, in turn, created new jobs – and, today, employs 474 people directly.

But, the company also supports over 100,000 tobacco farmers, as well as and over 2,500 suppliers, dealers and retailers, in income-generating activities that also support the economy in one way or another, including boosting public revenues, CTI says.

In 2016, there was a 5 per cent growth in production volume – the highest in over five years – thus leveraging on more tax revenue. This was thanks to the government refraining from hiking the excise duty.

“This provided room for the generation of more tax revenue through volume growth, as the value-added tax and excise duty are driven by volume,” CTI says in a press statement.

Lower taxes would also encourage the use of locally available raw materials, and increased domestic value addition.

The “75 per cent local content requirement” spurs the use of locally available tobaccos, CTI says, adding that almost 100 per cent of cigarettes produced by TCC for the domestic and export markets use Tanzanian tobacco.

Furthermore, reduced taxation encourages further investment in the tobacco value-chain, the Confederation stated, citing as an example of the JTI Leaf-Tanzania that set up a local operation in 2012 to procure Tanzanian tobacco for use by domestic manufacturers as well as for export.

All this is in line with the agenda of the fifth-phase government of President John Magufuli to promote use of locally-available raw materials and domestic value addition.

“This encourages inward investment and industrialisation,” CTI stressed.