Fags smugglers, beedi makers burn hole in State coffers!

According to the latest reports, the country has seen a sudden surge in smuggled cigarettes during January and February 2017.

The first two months of the year saw law enforcement authorities detecting over 10 million sticks of illicit cigarettes, compared to the four million sticks detected during the whole of 2016. 

This indicates a massive influx of illicit cigarettes flooding the local market. This escalation in smuggled cigarettes comes against the backdrop of the Government increasing taxes on cigarettes manufactured in Sri Lanka. In October last year, the Government increased excise on cigarettes manufactured by the only legal player followed by the implementation of 15% VAT which saw the price of a cigarette going up by 43%. 

As expected, this price increase led to legal players’ volumes reducing sharply, with CTC’s financial results for 2016 indicating a volume drop by half, an objective the Government hoped to achieve as a measure to reduce smoking-related diseases. Unfortunately, this is not the end of the story. It seems that the legal players’ loss has become a boon for cigarette smugglers and beedi manufacturers, a consequence the Government seems not to have foreseen.

According to Customs officials, smuggled cigarettes only make up 2% of the total cigarette market in the country. Despite the efforts of law enforcement agencies to curtail the inflow of illicit cigarettes by carrying out raids and seizures, industry statistics indicate that only one in ten cigarettes smuggled are detected by law enforcement. Nine times the detected quantity of smuggled cigarettes enters the market undetected. As such, it is estimated that the total smuggled volume in 2017 will reach 534 million sticks with the Government incurring an annual revenue loss of Rs. 16 billion.

Furthermore, contrary to popular belief, there has been no drop in smoking following the tax hikes as more smokers are now replacing cigarettes with beedi, a cheaper alternative with harsher smoke which attracts nicotine addicts. 

A stick of beedi costs only Rs. 5, making it affordable and attractive not only to the price-pressured smoker but also to the youth. According to Customs, beedi constituted 44% of the tobacco smoking market in the country in the 2015-2016 period, successfully remaining under the Government radar. 

Some policymakers have gone on record saying that beedi is less harmful as it is not a tobacco product, a viewpoint that seems to have helped beedi grow and thrive. After opposition from anti-tobacco lobbyist, in 2016 the CESS on Tendu leaf wrappers was increased as a measure to gain more revenue from the booming beedi industry while also attempting to reduce consumption. However, this measure too has proven futile as manufacturers have found a local substitute to the imported Tendu leaf thereby evading the payment of the import taxes. Twenty-five percent of the total beedi market now consists of beedi which has been acquired without the payment of duty, causing the Government massive losses in tax revenue.