By NEIL HARTNELL
Tribune Business Editor
nhartnell@tribunemedia.net
A Freeport-based cigarette manufacturer’s claim that it was “unlawfully compelled” to pay millions of dollars in Excise Tax to Bahamas Customs was yesterday dismissed in its entirety by a Supreme Court judge.
Caribbean Tobacco Enterprises, producer of the Palms cigarette brand, had alleged it was exempt from these tax payments under both the Excise Tax Act 2013 and Excise Stamp (Tobacco Products Control Act) 2013 despite paying some $11m to Customs between 2014 and 2019.
It also asserted that the tax exemptions conferred by the Hawksbill Creek Agreement, Freeport’s founding treaty, meant no such payments should have been incurred but Justice Diane Stewart found the company’s case to be entirely without merit.
She ruled that because Caribbean Tobacco Enterprises’ products are “consumables”, meaning they are sold to individual consumers rather than fellow businesses, the manufacturer was “not entitled to a general exemption from the Excise Tax for its tobacco products manufactured and processed in the Port area”. And, as a result, Customs was lawfully able to levy Excise Tax at 15 cents per cigarette produced.
Justice Stewart’s judgment revealed that Caribbean Tobacco Enterprises and the Government’s main revenue agencies, the Department of Inland Revenue and Customs, appear to have had a strained relationship from the very moment the company received its licence from the Grand Bahama Port Authority (GBPA) to begin importing and manufacturing on April 1, 2013.
Caribbean Tobacco Enterprises gave away 500,000 cigarettes in a sales promotion to announce its launch, which sparked Department of Inland Revenue accusations it had failed to comply with relevant tax laws. As a result, the agency “stationed one of its employees at the premises of Caribbean Tobacco Enterprises for the purpose of verifying the number of cigarettes manufactured in order for the Excise Tax imposed to be accurately monitored and enforced better”.
The Palms manufacturer “was forced to bear the cost of the Inland Revenue Department’s posting of its employee at the premises... The Inland Revenue Department thereby threatened to use its statutory authority to prevent Caribbean Tobacco Enterprises from operating its business as a manufacturer of tobacco products”.
And Customs superintendent Larry Bodie, in evidence given before the Supreme Court, indicated the existence of “a back tax payment plan” that indicated Caribbean Tobacco Enterprises “may have fallen behind in their payments and was essentially on a payment plan... The reflected amounts were due much earlier as opposed to being current. He knew that, to-date, the plaintiff still had an outstanding amount of tax to pay”.
Stunce Williams, Caribbean Tobacco Enterprises’ president, also told the Supreme Court that two current Cabinet ministers were involved with events. Besides then-prime minister Perry Christie, he also consulted Obie Wilchcombe, then tourism minister but now minister of social services and community development, on the tax breaks and investment incentives the proposed business could access.
It was Mr Wilchcombe who directed him to Freeport, and Mr Williams said he subsequently complained to Dr Michael Darville, then minister of Grand Bahama but now minister of health and wellness, about “the unlawful imposition of Excise taxes. The only response he received from Dr Darville was that he would speak to the Prime Minister and minister of finance and revert to him”.
Caribbean Tobacco Enterprises, which was represented during the trial by Damian Gomez QC, former minister of state for legal affairs, said the 15 cents per manufactured cigarette levy had been imposed from April 2016 to January 2019. Annual tax payments rose from $127,592 in 2014 to $1.672m in 2017; $2.674m in 2018; and $6.076m in 2019.
Mr Williams argued that the business, which produced two to three million cigarettes per month, should be exempt from the 15 cents levy as the Excise Tax Act 2013 and following amendments “gave a general exemption” from the tax for goods manufactured or processed in the Port area. As a result, he argued that there was no legal basis for the levy even though the company was governed by the Excise Tobacco Act and sold its products through Bahamian retail outlets.
“Caribbean Tobacco Enterprises felt as if it was being oppressed,” Justice Stewart wrote of Mr Williams’ evidence. “On every pack of cigarettes sold it earned $2 which he would not call a profit. Caribbean Tobacco Enterprises paid for the stamps which are held in the custody of Customs until they were in production. Cigarettes cannot be sold without the stamp affixed to the packaging.”
The company was informed that it could not manufacture unless the 15 cents per cigarette levy was paid. Under cross-examination, Mr Williams said it did not make a profit from selling cigarettes. And the devastation inflicted by Hurricane Dorian in early September 2019 forced Caribbean Tobacco Enterprises to sub-contract production to a firm in Canada as its Freeport plant was under four feet of water.
Justice Stewart ruled that the company’s bid for damages prior to January 22, 2018, was statute-barred by the Limitation Act which restricts such claims to the immediate 12-month period before the relevant action is filed. And while Caribbean Tobacco Enterprises was exempt from taxes on its equipment and raw materials, no such break was due on Excise Tax paid on the cigarettes it manufactured.
Noting that “consumable stores” are not exempt from taxation under the Hawksbill Creek Agreement, Justice Stewart wrote: “The nature of the plaintiff’s product and their movement by the plaintiff disqualified the same from tax exemption in its final state of production, notwithstanding that the materials and machinery imported and used in the manufacturing process may avoid such tax liability....
“The excise tax of 15 cents per cigarette was lawfully and correctly imposed on the plaintiff in accordance with the applicable legislative regime.”
Comments
Use the comment form below to begin a discussion about this content.
Sign in to comment
Or login with:
OpenID