Sri Lanka Tobacco Monopoly Profits, Revenues Drop  

Source from:  Lanka Business Online 11/11/2013

Revenues at Sri Lanka's Ceylon Tobacco Company dropped in the September 2013 quarter from a year earlier amid multiple tax hikes showing that demand for the addictive product is not inelastic as earlier envisaged.

Profits for the September 2013 quarter was flat at 2.33 billion rupees, barely changed from 2.30 billion a year earlier. In the June 2013 quarter the firm reported earnings of 2.8 billion rupees up from 2.4 billion rupees a year earlier.

The firm reported earnings of 12.46 rupees per share. For the nine months to September the group reported earnings of 35.34 rupees per shares.

In the September 2013 quarter, the group said revenues dropped to 21.0 billion rupees from 21.6 billion rupees amid price rises and weak economic conditions that brought an 11 percent fall in demand.

Excise tax contributions to the state dropped to 13.3 billion rupees in the quarter, from 14.1 billion rupees

Tobacco has seen multiple price rise as the state slapped taxes to cover rising spending over the past year.

Tobacco, which is highly addictive, is generally said to have inelastic demand, indicating that when represented graphically the demand curve slopes steeply upward at an angle greater than 45 degrees.

Such market conditions allow for total revenues and taxes to the state to increase despite falling volumes.

But total revenue from the sale of goods with elastic demand which have a shallower demand curve falls when quantity demanded falls.

Economic analysts say an economic downturn (Sri Lanka suffered steep currency depreciation over the past year which had reduced disposable income) was also involved factors other than price are also at play.

This may make it premature to conclude that demand for cigarettes is inelastic in theory, but Sri Lanka has seen downturns in the past which also triggered tax hikes.

But the state this time as not been able to gain as much taxes as hoped for with turnover based taxes declining in absolute terms quarter over quarter.

During the nine months to September the Ceylon Tobacco said it had contributed 48.5 billion rupees to the state, which was a 0.7 billion rupee increase.

The firm said it had increased sales of Dunhill branded premium cigarettes 9 percent in volume terms which brought it wider margins. Enditem