Govt. to inhale more revenue from fags

ADIC hails hike in tax; CTC wary

By Shehana Dain

The Government will raise more revenue via the latest hike in tax on cigarettes, a move that has been welcomed by anti-tobacco lobby but with caution by the sole manufacturer.

An industry expert told the Daily FT that the Government’s decision to go ahead with the tax hike on cigarettes would result in at least a 10% increase of tax revenue to the State.

Over the weekend the Government increased the excise duty on 1,000 cigarettes of the Gold Leaf variety by Rs. 2,140 to Rs. 23,750, and as a result the price of a cigarette increased by Rs. 3 to Rs. 33.

“If the volumes are stable and because it’s a price increase of 10%, the Government can expect a 10% revenue increase,” he said

In the first half Ceylon Tobacco Company (CTC) contributed Rs. 43.7 billion to the Government as excise and other taxes. This is an increase of 18% in comparison to the same period last year and was primarily driven by an excise-led price increase experienced in October 2014 along with higher volumes during the first six months of 2015.

Alcohol and Drug Information Centre (ADIC) Information Analyst Asitha Darshan emphasised: “With the increase of Rs. 3 this time, we only get to hear about the price. We have a question as to how much the Government will get as tax and how much the manufacturing companies will profit via this tax; that’s something we need to know directly via the Treasury. According to our research, the Government receives 60% and the manufacturing company receives 40% through such tax imposed.”

Darshan further went on to say that while an increase of Rs. 3 per cigarette was commendable compared to the prior year’s increase of Rs. 2, it would be a temporary solution as the customer would adapt to the price change in the long term.

“According to Sri Lanka’s inflation and buying power, the price of a cigarette should be minimum Rs. 45 but ours is only Rs. 33. If it does increase to that level, the average cigarette consumption will reduce by 80%. If the Government really wants to reduce consumption of these two products, what’s needed is an increase of 50% which can make a considerable impact, not a step-by-step annual increase of 10%-15%, which is adaptable.”

However, an industry expert defended that statement, highlighting: “Even the Finance Ministry explained to them saying that their calculation is false. From our prices in Asia Pacific from 40-50 countries, Sri Lanka is the fourth highest price market. Countries that have higher prices are Australia, Singapore and Hong Kong. Even Japan and Korea are way below us.”