High price drives down Govt. revenue from smokers

Monday, 8 January 2018 00:55 -     - {{hitsCtrl.values.hits}}

The Government’s excise earnings from tobacco dipped by Rs. 2.7 billion in 2017, ending a prolific run of growth. 

Reports from the Department of Excise point to a revenue drop of 3.1% last year to Rs. 86 billion, over the figure of Rs. 88.7 billion in 2016. 

State earnings from the Ceylon Tobacco Company grew a mammoth 37.5% in 2015 when revenue grew by Rs. 21.5 billion, followed by growth of 12.46% in 2016. 

Company sources attribute the reduction in government revenue to the unprecedented 40% drop in volumes last year, following the sharp increase in prices during the last quarter of 2016. 

In October 2016, the then Minister of Finance slapped a 43% increase on the price of a stick, significantly impacting sales. It adds that the drop in the sale of legal cigarettes due to the high price was compensated by smuggled illicit products entering the market; estimating that over 500 million illicit sticks entered Sri Lanka in 2017 amounting to a loss of over Rs. 20 billion to the Government. 

Government excise earnings from tobacco was just Rs. 57 billion in 2014 before it peaked at Rs. 88.7 billion in 2016. At pre-October 2016 prices the Government would have earned a record Rs. 105 billion from CTC during the year that ended, officials say. 

To combat the smuggling of illicit cigarettes, during the 2018 Budget presentation, the Government proposed to issue new licences to import cigarettes whilst clamping down on smuggling.