BAT’s profit falls 15pc to Sh4.2bn on higher sin tax

Cigarette manufacturer British American Tobacco has recorded a 15 per cent drop in after tax profit for the year ended December 2016 to Sh4.2 billion.

The introduction of excise duty and the use of excise stamps on cigarettes contributed to the profit slump, the cigarette maker said yesterday in a statement.

BAT said tax contributions to the government hit a new high of Sh19 billion as the manufacturer continued to bear the sin tax that Treasury has raised regularly in recent national budgets.

“Contribution to government revenues in the form of excise duty, value added tax (VAT), pay as you earn (PAYE)  and corporation tax increased significantly by Sh3.1 billion to a record Sh19.2 billion in 2016. This increase was mainly driven by significantly higher excise duty and VAT from domestic business as well as a higher PAYE,” BAT said in the statement.

Despite the profit drop, the board recommended a Sh39.50 dividend per share.

If approved by the shareholders at the AGM to be held on April 27, the shareholders will have received Sh43 per share dividend in addition to an earlier interim payout. BAT said the dividend, which is subject to withholding tax, will be paid on April 27 to the shareholders on the register at the close of business on March 22, 2017. The introduction of excise duty has led to an increase in cigarette prices, lowering sales for the Thika-based manufacturer.

The higher taxes and price rises saw the firm’s gross revenues increase by two per cent to Sh36.7 billion. The higher sales values were however offset by lower contract manufacturing sales. “Excise duty and VAT increased by 24 per cent to Sh16.8 billion driven significantly by higher excise duty following the implementation of a single tier excise regime on December 1, 2015. We grew market share in 2016 notwithstanding the diverse price increases on sales mix,” BAT stated.

The cigarette industry has been profitable despite increased legislation and taxation meant to control its usage.

Last week, a three-judge bench of the Court of Appeal dismissed an application by BAT challenging the 2014 Tobacco Control Act compelling manufacturers to   contribute a percentage of their profits to cater for adverse effects of tobacco use. Appellate judges Festus Azangalala, Hannah Okwengu and Fatuma Sichale also ruled that cigarette makers will have to publish graphic images on packaging to warn the public against tobacco use.