VAT To drive up prices on Banks products
Kaieteur News
January 21, 2007
Beverage and manufacturing company, Banks DIH, last year recorded an all time high turnover of $14 billion as against just over $13.2 billion in 2005 but was however challenged by a steep increase in fuel prices.
Against this backdrop, the company's Chairman, Clifford Reis, while addressing the 51 st Annual General Meeting (AGM), said that the company was restructuring to meet the demands of braindrain, the cost of operating in a global economy and the exorbitant taxes paid over to the government.
Reis sounded a chilling warning to shareholders that with the introduction of the Value-Added Tax (VAT) from January 1, the company's tax burden had increased and there was no other way but to filter the increase down to consumers.
He said over the past month, the company has been inundated with information about the new tax regime and those issues surrounding its implementation.
“This new tax regime will significantly increase our cost which can only be passed on to the end user, the consumer, and the results more than likely will be a reduction in volume,” Reis stated.
Giving examples of where the company was paying more taxes since the introduction of VAT, Reis pointed to instances where the consumption tax of 10 per cent was replaced by VAT of 16 per cent.
He said that malts, banks beer and liquor products now attract 60 per cent consumption tax, a 40 per cent excise tax plus a VAT of 16 per cent compounded.
Reis added that the consumption tax on Tropical Mist increased from 10 per cent to VAT 16 per cent, an increase of six per cent.
Snacks and cereals which previously attracted a consumption tax of 10 per cent are now being taxed at16 per cent, an increase of six per cent.
Biscuits and Ice-cream, he said, previously attracted 0 per cent consumption tax but now attracts VAT at 16 per cent, an increase of 16 per cent.
According to Reis, the consumption tax on all breads was 0 percent and while some bread products are zero-rated, hamburgers and hotdog rolls attract VAT.
He said at Demico restaurants, the goods and service were not previously taxed, but with VAT these will attract 16 percent.
Reis noted that the company will be able to reclaim some inputs on spare parts and advertising materials, but generally, VAT is adversely affecting the company and this will be transferred to consumers.
“January 1 has come and gone and VAT is here to stay. It is no longer an issue of preparation; it is now an issue of adjusting to the demands of this tax regime. There are those who will say that VAT simply replaces some of the existing taxes so that there will be no increase in the cost of living. Well the Jury is still out on the issue. Time will tell. Within the company our calculations tell a different story,” Reis alluded.
Restructuring
Reis told shareholders that in order to maintain profitability, several bold initiatives were taken such as making purchases on a rigid timetable and reducing operational expenses in the company.
He pointed out that the company has focused specifically on restructuring the labour force to become more efficient.
According to Reis, a plan was implemented to change the working hours of staffers at the Demico outlets and the mode of operations at these restaurants in an effort to render better service.
The Chairman pointed out that the company has changed the reselling mode of stock to dealers and has also sought to produce new products, including the premium beer which sold 37,000 cases in three months.
Part of the restructuring, Reis said, has seen the company investing in a new $110 million yeast plant and $31 million computer hardware as part of a growing need to computerize its systems.
Reis also told shareholders that the company has been forced to train more with the exodus of many skilled workers.
“We will continue to train to meet our demands.”
He alluded that the company was seeking to market its product in the Caribbean and North America , specifically targeting the Guyanese Diaspora.
Challenges
During his presentation, Reis outlined that the after tax profit attributable to shareholders for last year amounted to a mere $781M as against $823.8M in the previous year.
The reduced profit, according to Reis, must be viewed against the fuel prices which he notes cost the company in excess of $335M.
“This increased cost of fuel was not budgeted for and could not have been passed on in total to consumers because of the competitive state of the official market and the growing unofficial market which includes smuggling and under invoicing imports.”
Additionally, the Chairman pointed out in the report that the increased consumption tax on beer and liquor from 50 per cent to 60 per cent continues to affect the company's competitiveness and also demand.
These challenges were compounded after taxes paid to the government increased from $3.635B in 2005 to $3.822B in 2006, Reis said.
Reis assured shareholders that the working capital of the company continues to be strong and at the end of the just concluded year stood at $3.359B, an increase of 6.4 per cent over 2005.
According to Reis's report, the Board of Directors declared a first interim dividend of $0.12 per share which was paid on May 30, 2006, and a second interim dividend of $0.12 per share which was paid on October 23, 2006.
A final dividend of $0.16 has since been recommended per share. This will be payable on January 22, bringing the total dividend for the year to $0.40 per share with the overall cost being $400M.
Citizens Banks Guyana Incorporated, which is a subsidiary of the Company, achieved a $347M after tax profit as against $345 in 2005. This profit, according to Reis, was affected mainly by Government's failure to honour an obligation for the repayment of bonds held by the Bank.
He told shareholders that the Bank has filed a claim in the courts of Guyana against the government for a full repayment of the bonds.
The Chairman noted that Banks Holdings Limited now owns 20 per cent of the share capital of the Banks DIH Limited and Banks DIH Limited holds 9.2 per cent of the share capital of Banks Holdings Limited as at September 30, 2006.
He said the synergies from this relationship have progressed and benefits in export sales have started to accrue to both companies. Banks DIH Ltd will shortly commence the bottling of Plus Energy Beverage under License from Banks Holdings Ltd, he asserted.
According to Reis, Banks DIH Limited will continue to take an active interest in various social activities throughout Guyana by embracing various community projects in culture, education and sport, among others.