illicit

Tax hikes a concern

Business

By MARK HAIHUIE
TAX increases on alcohol and tobacco products will further worsen the market situation which local manufacturers operate in, according to the Manufacturers Council of PNG.
Chief executive officer Chey Scovell told The National that tax increases on local manufacturers made it difficult to do business while they encourage more trade in illegal substitute products.
“Until 2012, Papua New Guinea had a transparent, albeit a little too high, manageable level of excise on excisable products,” Scovell said.
“When needing funds to pay for the free education and health, they slugged excise products with a big increase.
“Prior to the increase, illicit trade was about 10 per cent of the market, with 7 to 8 per cent of that being locally grown brus or steam.
“There was only 2 to 3 per cent penetration of finished goods finding their way into our market.
“Within six months of the increase, there was a measurable loss in the market by legally producing companies.
“Fast forward three years and the ad hoc increases in excise in tobacco products has seen the unregulated market grow to over 30 per cent.
“Any smoker would concur that street sellers commonly have one or two legal products on the mat and 8 to 10 unregulated products (K1.20 loose versus 50 toea).
“Continued alcohol bans and weaker controls on incoming vessels has seen for the first time over 75 per cent a decline in volumes from local alcohol manufactures.
“In both segments the total market is growing, but the regulated manufacturers – those complying with all our laws, are selling less in a growing market, and of course this is indicated by the reduction in the government’s revenue on excise products.
“As many consumers know, over the past 4 years we’ve seen increased shelf prices (even when the kina was appreciating against the USD and AUD), and even more increases this past 12-18 months as the Kina’s value has declined.
“What consumers don’t realise is that the excise manufacturers haven’t been increasing their prices or importantly their margins.
“They have absorbed the costs as a measure to retain market-share.
“They like all businesses need to be profitable and must have a margin of return commiserate to their investment.
“These manufacturers do not have the ability to absorb any more costs.
“The 15 per cent in tobacco excise and a doubling of the biannual excise increase (5 per cent every six months) will provide a massive incentive for the illicit traders.
“We expect to see their 30 per cent market share increase to 50 per cent very quickly.
“The Manufacturers Council is concerned for two reasons.
“First, we want all local manufacturers to be profitable, we want them to grow their business.
“Second, we know how important it is for the government to get in revenue during the slump in commodity prices and initial phase of paying for our investment in the LNG.”

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