Nov 29, 2016

Tax hike on cigarettes fails to bring expected revenue

Sri Lankan government’s tax hike on cigarettes has brought down the monthly revenue from excise tax on Ceylon Tobacco Company (CTC) as its sales drop significantly, official data showed.

The proposed tax deterrent which will make cigarettes more expensive also expects to reduce the number of daily smokers in the country by 200,000 adults representing a 14% decrease.

In addition, 70,000 of country’s current youth population (those below 15 years) are estimated to be prevented from starting to smoke.

However the affordability of cigarettes is almost twice as affordable now for consumers, compared to year 2000. Affordability is calculated using the per capita income, rate of inflation, household income etc,

According to Finance Ministry data, the monthly revenue from tobacco tax on CTC downed by Rs.2 billion following the tax hike.

The monthly Revenue from tobacco tax on CTC has come down to Rs.6 billion from Rs.8 billion before the tax hike, Finance Ministry data showed.

Accordingly the annual tobacco tax revenue is expected to decline to Rs. 72 billion from the targeted revenue of Rs. 96 billion.

Increasing taxation will increase government revenue and also reduce consumption especially among the young and the poor, which is a win-win situation to the country.

Though a large amount of excise tax is collected from tobacco, the studies show that there is a lot of scope for the government to collect more taxes and at the same time reduces consumption, Verite Research revealed.

Tax on cigarettes should be revised monthly according to the existing economic situation. A price formula should be introduced through Parliament to fix the price of cigarettes to match the prices of other commodities, Verite Research emphasized.