Taxes hit - CTC announces 20% layoff of employees

In the backdrop of the sharp decline in sales volumes, Ceylon Tobacco Company PLC (CTC) said in a statement yesterday it has been compelled to change its manufacturing operation in Colombo from three shifts to two.

This latest move by the company comes in the wake of the 45% reduction in sales during the last quarter of the year as a result of the excise hike on 4 October, and the imposition of 15% VAT on 1 November. 

The reduction in the number of shifts means that CTC will face a 20% headcount cut in its factory, a measure its Managing Director and Chief Executive Officer Michael Koest said it has been forced to take to ensure the future sustainability of the company. 

“The recent moves by the Government to increase taxes on legal cigarettes has directly impacted our operations in Sri Lanka. It places the sustainability of a business that has been legally operating in Sri Lanka for over a century in jeopardy,” said Koest. This is the first headcount reduction by the company since 2007.

Commenting further on the impact of the tax hikes, Koest said: “The high prices of legal cigarettes have driven smokers to products such as beedi or smuggled cigarettes while putting severe pressure on our volumes. So clearly smokers are substituting legal cigarettes with cheaper and illegal alternatives. As a result, the Government has lost over 10 billion in revenue during the last quarter of 2016. This defeats some of the Government’s major objectives such as improving public health and increasing revenue.”

Over the years CTC has been recognised for its productivity standards and one of the few companies in Sri Lanka that boasts of a lean and efficient operation. Koest explained that any further increases in taxes on cigarettes will therefore have far flung consequences that would impact the livelihoods supported across the company’s value chain.

“Currently CTC directly and indirectly employs over 46,000 persons and over 300,000 livelihoods are dependent on our industry at various stages of operations from farming to distribution and sales. Tobacco leaf is sourced in Sri Lanka from over 20,000 farmers. Cigarettes are processed in our factories and finished goods are distributed by 16 distributors via over 72,000 retailers islandwide. We infuse over Rs. 8 b to the rural economy annually through our farming and retailing activities,” he elaborated. 

Only recently the company announced that it had plans to shut down four leaf depots.