Cabinet this week approved slapping 15% VAT and Rs.5 production tax on cigarettes as well as an increase of cess on the import of “beedi” leaves despite industry appeals against additional tax increases that could reduce revenue to the Government.
President Maithripala Sirisena and Health Minister Dr. Rajitha Senaratne jointly submitted a Cabinet paper calling for the increase, which was approved after the Finance Minister appointed a committee to consider its impact on State revenue. Sirisena had pushed increased taxes on cigarettes during his tenure as Health Minister before becoming president and Dr. Senaratne last month announced plans to increase taxes to 90% of cigarette costs.
“Cabinet has decided to impose 15% VAT on cigarettes again, increase the current production tax to Rs. 5/- for any size cigarette, and to increase the cess on import of beedi leaves from Rs. 2,000/- to Rs. 3,000/- and to take other actions to minimise the tobacco use in the country,” the Cabinet announcement said.
The Cabinet paper also said 15% of Sri Lanka’s population between the ages of 18-69 smoke and the State spends Rs.72 billion each year to treat tobacco related illnesses.
Ceylon Tobacco Company (CTC), which holds a monopoly in Sri Lanka, had protested the move insisting the “overambitious” move would hit already highly taxed stick prices.
Currently taxation on cigarettes in Sri Lanka is the third highest in Asia whilst CTC’s value addition is near 90%. In 2015, CTC’s Value Added to the State via excises and taxes was a staggering Rs. 91.6 billion, up by 24% from the previous year. The 2015 value amounted to 7% of the State’s total tax revenue and 88% of the value generated by CTC.
In the first half of 2016 the Government earned Rs. 46 billion, up 12% from the previous year.
“CTC does not have the capacity to absorb any more taxes as already we retain 1% of profits. We have to pass these tax increases onto consumers, which would result in stick prices increasing by at least Rs.10 on average,” a spokesman for the Company told Daily FT. (UJ)