The Alcohol and Narcotics Information Center says that the government has lost nearly 100 billion rupees that could have been gained due to the non-increase in cigarette taxes in 2020-2021 and that the government should take action to recover this tax loss to the country from this year’s budget.
Various proposals as a solution to the current economic crisis in the country have been put forward by the Ministry of Finance from time to time and some proposals have met with great public opposition. The Alcohol and Narcotics Information Center said in a statement that the Ministry of Finance has not proposed or considered any increase in cigarette taxes since 2019, which could have the least impact on the majority of the population.
The statement issued by Pubudu Sumanasekera, Executive Director of the Alcohol and Drug Information Center further states:
It appears that the Tobacco Company, through the Ministry of Finance, has implemented various tactics to maintain the excise duty on non-essential cigarettes without any increase as taxes on essential commodities continue to rise over the past two years.
Below is an increase in the price of Gold Leaf cigarettes (the most widely sold) since 2015.
Year Price of a cigarette (Rs.)
2015 33
2016 35
2017 50
2018 55
2019 65
2020 65
2021 65
There has been no increase in cigarette taxes since 2019. If the price of cigarettes had been increased by at least 20 rupees during that period, the government could have collected nearly 100 billion rupees in additional tax revenue.
The value of this tax money lost by the government can be understood from the following examples.
The cost of the Southern Expressway is 100 billion rupees.
The cost of the Moragahakanda reservoir project is 91 billion rupees.
The cost of the airport access expressway is 39 billion rupees.
The cost of the Mattala Airport is 21 billion rupees.
If the amount of cigarette tax lost to the country due to this irresponsible role of the Ministry of Finance had been recovered correctly, the government would not have to increase taxes on essential commodities so much.
The Central Bank’s 2020 report (p. 155) states that the last increase in cigarette taxes in 2019 increased government tax revenue to 94.3 billion. Although this has been confirmed by previous Central Bank reports as a very successful strategy, it is surprising that the Ministry of Finance has completely forgotten about this tax increase over a period of two years, when taxes on essential commodities continue to rise.
Also, the main reason for the delay in increasing the cigarette tax, the improper increase in the price of cigarettes and the various benefits to the tobacco company is that there is still no formal cigarette tax system approved by the Parliament in Sri Lanka. By eliminating the complicated taxation system according to the length of the existing cigarettes and bringing in a scientifically simplified tax policy, maximum taxes on cigarettes can be imposed to maximize government profits and prevent the cigarette industry from making illicit profits.
The then Minister of Finance and the present Prime Minister Mahinda Rajapaksa stated under the heading ‘Tax Policy in the Budget Speech 2021’ that such an efficient system would be introduced, but the necessary arrangements for that have not yet been made through the Ministry of Finance. Throughout history, the role of the Ministry of Finance has been to implement policy decisions in favor of the multinational tobacco company rather than levying tobacco taxes in the best interests of the country. Correcting this situation is the primary responsibility of all public representatives.
Also, according to the World Health Organization (WHO) recommendations, a significant increase in taxes on cigarettes and tobacco products is the best way to control cigarette use. (World Health Organization, WHO / NMH / PND / 14.2) On average, raising cigarette taxes by 10% increases government tax revenue, while reducing cigarette consumption in countries like ours by 5%. At the moment it has been scientifically proven that reducing cigarette use is also very helpful for the COVID-19 preventing process.
Every time taxes on cigarettes and tobacco are raised, the cigarette companies spread false propaganda through the media that the illicit cigarette trade is on the rise and the use of beedi is on the rise, and by the time the budget proposal is presented each year it has been a fact for many years. Surveys have shown on several previous occasions that the illegal sale of cigarettes is carried out by the cigarette companies themselves and that the use of beedi has not increased in Sri Lanka. Therefore, we would like to remind you that all those advertisements are just the tricks of the cigarette company.
Considering above facts, in order to prevent further losses to the country in the face of this economic crisis, it is necessary to retain the huge amount of money flowing out of the country, thereby increasing government revenue and providing relief to the people. We, the Alcohol and Drug Information Center, have sent a letter to His Excellency the President, His Excellency the Prime Minister, Government Members of Parliament and all Members of Parliament from the Opposition informing that the following steps should be taken in preparing the 2022 budget proposal to be presented in November 2021 this time.