Ashes to Ashtons: Taxing Concern

<< Back to Robb Report, July 2008

With its resiliency, its ability to bend without breaking, the Ometepe tobacco leaf is analogous to Nicaragua’s cigar industry, which has withstood many challenges in recent years. ?The vast number of U.S. companies doing business in Nicaragua today makes another embargo unlikely. Nevertheless, the United States does pose a prominent threat to the cigar industry.

In April, the Senate Finance Committee was debating a proposed new tax on tobacco, which would include cigars. The tax, part of the State Children’s Health Insurance Program, would more than double the manufacturer’s tax on imported, hand-rolled cigars. The tax would be capped at $10 per cigar (on top of already-existing state and federal taxes).
 
Some Nicaraguans fear that this tax would have a calamitous effect on sales, and cripple the industry as severely as did the blue-mold epidemic and the Sandinista attacks of the 1980s. “I’m more afraid of the taxes coming from American politicians than I am of anything coming from a communist regime,” says Nick Perdomo Jr., owner of Tabacalera Perdomo in Estelí.

Nicaragua’s cigar-making companies are hoping that, should the tax pass, Nicaraguan President Daniel Ortega Saavedra’s government will come to their aid, although it is not clear what could be done.

“This proposed new tax could result in tremendous unemployment, broken families, and immigration out of the country,” says Alejandro Martínez Cuenca, owner of the Joya de Nicaragua cigar brand. “Tobacco provides employment for 30 percent of the population in the northern part of Nicaragua—about 500,000 people. We export $100 million a year in cigars and leaf tobacco, so it is very important for our government to listen to us, to respect our industry, and to realize that we are making a very important economic and social contribution to the stability of the country.”

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