The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Graycliff yesterday said it had preserved 25 per cent of its cigar business by reaching “a happy compromise” over the Government’s tax policies, a move that will allow it to continue domestic sales.

Paolo Garzaroli, Graycliff Cigar Company’s president, told Tribune Business that “everyone is happy” following Wednesday’s crunch meeting with the Ministry of Finance, which removed the threat of a 220 per cent Excise Tax rate being applied to its trademark cigars.

Indicating that Graycliff’s product will now be subjected to a lower taxation rate, Mr Garzaroli said the agreement removed an Excise Tax that was “too cost prohibitive” for its Bahamian cigar sales, while also ensuring the Government gets its due revenues.

Suggesting that the arrangement was one where “everybody wins”, Mr Garzaroli added that the proposed Excise Tax rate would have “hurt” not just the direct cigar business but also Graycliff’s boutiques.

“It went great. We’re very happy with the outcome,” Mr Garzaroli told Tribune Business of the meeting with Ministry officials.

“The Government was very understanding and receptive to our position, finally, and we’ve gotten a favourable response. They don’t want to put us out of business. We’re going to continue business as usual.”

Mr Garzaroli told Tribune Business on Wednesday that Graycliff 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.

Effectively warning that the Government would have turned Graycliff into an export manufacturer only, Mr Garzaroli said then that under the Government’s existing plans, set to be implemented from tomorrow, the company would have faced a $4-$6 tax per cigar at the manufacturing level alone.

This would, he added, have translated into an $8-$10 increase in retail prices for Bahamian cigar lovers.

“It was 220 per cent and $0.50 a cigar,” Mr Garzaroli added. With that threat now removed, he said: “It’s not to the point where it’s prohibitive, and the Government will collect their revenues.

“We’re going to be fully compliant. They’re going to collect their taxes, that’s their game, and for us it’s going to be business as usual.”

Asked about the impact on Graycliff’s business had the Government followed through with its original Excise Tax plans, Mr Garzaroli told this newspaper: “It just made it too cost prohibitive for Bahamians to buy Bahamian cigars in general.

“Cigars are made a lot less expensive in other countries, and my manufacturing costs are really high in the Bahamas. But, at the end of the day, it’s still as effective to agree to it [the new tax agreement].”

While declining to go into specifics on the details of Graycliff’s new tax arrangements, Mr Garzaroli added: “It’s a little bit more than what we were happy with but, at the end of the day, everything’s fine. There are no issues there.”

He estimated that domestic (Bahamian) cigar sales accounted for “25 per cent of our business”.

“It’s a substantial amount,” Mr Garzaroli said. “The thing about it is, it’s not just the cigar sales but our boutiques. It would have hurt more than the cigar business; it would have hurt the boutiques we have.

“We’re very happy with it [the agreement], and we move on. We’re happy to pay taxes. That’s the only way we can stay in business, and it’s a good compromise. The best negotiations are when everybody wins. Nobody gets everything they want.”

Mr Garzaroli praised the Government ministers and officials who had helped to make the compromise a reality.

His pre-deal concerns echoed 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.

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.