Ceylon Tobacco Misleading Shareholders: The Illicit Cigarettes Issue

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Background

Ceylon Tobacco Company PLC (CTC) is a subsidiary of British American Tobacco (BAT) and owns the monopoly of cigarette production and sales in Sri Lanka. This post is based on an analysis of the content related to illicit cigarettes in the annual reports of CTC for the past 10 years (2009-2018).[1][2][3][4][5][6][7][8][9][10]

Assertions and data related to illicit cigarette trade in the Ceylon Tobacco Annual reports failed to be backed by the citations of the research that generated such findings.

Arguments without an Acceptable Scientific Basis

  • Argument 1- Illicit market has grown in recent years
CTC gives a figure for the proportion of illicit cigarettes in the tobacco market in several of their annual reports without mentioning any source or study, which these figures were based on.[1][2][3][4][5][6][7][8][9][10] In the last three annual reports (2018, 2017, 2016), CTC claimed that illicit market has grown in recent years, without mentioning any evidence to support such an observation.[8][9][10]
  • Argument 2 - Price increase in legally marketed cigarettes has led to growth of illicit market
CTC argues in their annual reports that the price increase in legally marketed cigarettes has led to a growth in illicit trade. The issue is prominently highlighted in the Annual Report 2017, the report issued following the increase in excise tax and resultant price hike in October 2016 (Image 1).[9]
Image 1: An excerpt from the Annual Report 2017 depicting a highlighted statement on illicit cigarettes. The non-highlighted text says illicit trade is 6% of the cigarette market of the country, claiming overall tobacco use has increased due to the increase in illicit cigarette trade.[9]
  • Argument 3 – There is an increase in tobacco consumption due to increased illicit cigarette use
In 2017 CTC annual report, they claimed that tobacco consumption has increased due to easily accessible cheap illicit cigarettes (Image 1), again without stating any citation of the evidence for such a claim.[9]

Alcohol and Drug Information Centre (ADIC) Spot Survey, conducted annually in a representative sample of males aged more than 15 years to examine the trends of smoking in Sri Lanka, shows a fluctuating but decreasing trend of tobacco consumption from 2009 to 2017 (Image 2).[11]

Image 2: Trends of tobacco smoking among males in Sri Lanka.[11]

Ceylon Tobacco’s involvement in Illicit Cigarette Trade

Health Minister’s Allegation

A national newspaper reported a statement made by the current Health Minister Rajitha Senaratne, which claimed that tobacco companies are behind the smuggling of foreign cigarettes into Sri Lanka.[12]

The same newspaper later published a press release by CTC titled ‘CTC denies Minister’s allegations’ stating that CTC has never engaged in smuggling of cigarettes or any other tobacco product.[12]

British American Tobacco (BAT)’s involvement in the illicit trade

CTC is a subsidiary of British American Tobacco (BAT) which is globally known to be involved in the illicit cigarette trade, smuggling their own cigarettes in to countries they operate in and search to “manage volumes and price levels of smuggling markets”. BAT is also accused of using smuggled cigarettes to increase profits by evading tax and engage new users to their brands.[13][14][15]

Influencing Control of Illicit Trade

Image 3: Excerpt from the page 15 of the CTC document titled Sri Lanka Company Plan(Document No.1) referring to influencing control of illicit tobacco trade.[16]

Controlling illicit tobacco is the responsibility of the Department of Excise, functioning under the Ministry of Finance, Sri Lanka. Further, it is also responsible for executing the Tobacco Tax Act of 1999 and the National Authority on Tobacco and Alcohol (NATA) Act.[17] According to the CTC internal document titled Sri Lanka Company Plan (for 1995-1997), CTC liaise with authorities to “ensure transit trade is restricted to manageable quantities” (Image 3).[16]

Please read more in our page Industry Influences on Tobacco Control in Sri Lanka: 1990’s.

Tobacco Unmasked Resources

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Notes

  1. 1.0 1.1 Ceylon Tobacco Company PLC. Annual Report 2009, 2010, Accessed June 2019
  2. 2.0 2.1 Ceylon Tobacco Company PLC. Ceylon Tobacco Company Annual Report 2010, 2011, Accessed June 2019
  3. 3.0 3.1 Ceylon Tobacco Company PLC. Tobacco Company plc 2011 Annual Report, 2012, Accessed June 2019
  4. 4.0 4.1 Ceylon Tobacco Company PLC. THE RIPPLE EFFECT Annual Report 2012, 2013, Accessed June 2019
  5. 5.0 5.1 Ceylon Tobacco Company PLC. Most Preferred Annual Report 2013, 2014, Accessed June 2019
  6. 6.0 6.1 Ceylon Tobacco Company PLC. Ceylon Tobacco Company Annual Report 2014, 2015, Accessed June 2019
  7. 7.0 7.1 Ceylon Tobacco Company PLC. THE CORE OF EXCELLENCE Ceylon Tobacco Company Annual Report 2015,Undated, Accessed June 2019
  8. 8.0 8.1 8.2 Ceylon Tobacco Company PLC. Ceylon Tobacco Company Annual Report 2016 BEYOND THE SMOKE, 2017, Accessed June 2019
  9. 9.0 9.1 9.2 9.3 9.4 9.5 Ceylon Tobacco Company PLC. Against All Odds Ceylon Tobacco Company Annual Report 2017, 2018, Accessed June 2019
  10. 10.0 10.1 10.2 Ceylon Tobacco Company PLC. Best in class Ceylon Tobacco Company Annual Report 2018, 2019, Accessed June 2019
  11. 11.0 11.1 Alcohol and Drug Information Centre (ADIC) Sri Lanka. Spot Survey July 2017, 2018, Accessed June 2019
  12. 12.0 12.1 The Island. Health Minister: Tobacco companies behind fag smuggling, 20 January 2019, Accessed June 2019
  13. K Maguire, D Campbell. Tobacco Giant Implicated in Global Smuggling Schemes - Exposed: How billions of BAT cigarettes end up on black markets, The Guardian, 31 January 2000, accessed July 2019
  14. MS Beelman, D Campbell, MT Ronderos, EJ Schelzig. How smuggling helps lure generations of new smokers, The Guardian, 31 January 2000, accessed July 2019
  15. TobaccoTactics. BAT Involvement in Tobacco Smuggling], www.tobaccotactics.org, 22 February 2018, accessed July 2019
  16. 16.0 16.1 Unknown. Sri Lanka Company Plan British American Tobacco Records, 23 September 1994, accessed July 2019
  17. Department of Excise Website, undated, accessed May 2017