Paying for the economic sins of short-sighted policy

Wednesday, 19 April 2017 00:00 -     - {{hitsCtrl.values.hits}}

01By Patrick De Silva

Last week, President Maithripala Sirisena addressed a forum in Kandy where he extolled the dip in Government revenue from tobacco and alcohol, and went on to say that despite the drop in revenue, this would serve as an investment for future generations. 

It is difficult to assess if he has been kept in the dark on some of the developments on the ground over the past six months, or if this be another fine example of shrouding the truth for the want of baseless applause. 

For in reality, smoking and alcohol abuse continues to grow in Sri Lanka exponentially and due to smuggling and illegal activity, there is increased stress on public health expenditure and the safety of our future generations, and more importantly the entire population – non-smokers and teetotallers included – must pay for the short-sighted policy, politics and economic sins of Government with excise. 

President Sirisena, we hope you would take note that tobacco and alcohol abuse continues unabated in Sri Lanka fuelled by dangerous elements, resulting in billions in losses for your Government, and the blind eye turned by your officials to these real problems will one day render this country unliveable for respectable citizens. There are many more Meethotamullas in the making. 

A smugglers’ paradise 

As alluded in these pages before, our country has become a smugglers’ paradise; a gangland for economic crime. Wasteful Government expenditure and unwanted subsidies have piled immense pressure on State revenues, which successive regimes have tried to remedy through exorbitant taxes on excise and other elements, alongside petty political gain. 

As evidenced across multiple sectors and nations around the globe, when one pushes beyond a tipping point these actions – even with the noblest of intents – become counterproductive with dire consequences as what we see today in Sri Lanka. 

Smuggling of illicit tobacco products have grown over 1,500% over the last six months, illicit alcohol dominated over 80% of consumption and our citizens are being driven underground for even the basics of modern-day purchases due to your shirt-sighted policy and actions. It is the citizens who are forced to pay the price with their earnings, health and safety, quality of life, law and order – facets of human life that your Government and others had pledged to uphold. 

Delving deeper 

Let’s delve deeper for the purpose of better clarity, and I would once again like to focus on tobacco due to its revenue numbers and the presence of public information which your officials may choose to ignore. 

In the first three months of 2017, the Government has lost Rs. 15.3 billion in revenue from the legal tobacco industry in this country. This is a 50% drop in projected revenue, following the 45% hike in cigarette stick prices in October last year.  With cigarette stick price crossing the Rs. 50 barrier in October last year, the Government lost Rs. 11 billion in revenue over the last quarter of 2016. This amounts to a loss of Rs. 26.3 billion over a period of six months from the legal industry. 

Smuggling is growing exponentially at over 1,500%, with over 15 million illegal sticks detected in the first three months of 2017 over a total of four million sticks throughout 2016. With two out of 10 cigarettes in the market deemed to be illicit, and an estimated 150 million illicit sticks making it to the market, the Government will lose a further Rs. 7.5 billion in revenue this year. 

All of the above is a result of exorbitant pricing. At Rs. 50 a stick, it is too expensive for those who choose to smoke, which is an informed adult choice. Flaunting the second most expensive prices in the Asia-Pacific region, and that for a developing country, Sri Lanka is now a smugglers’ paradise with consumers preferring illicit over high-priced legal products.

If the Health Minister is allowed to introduce his infamous stick sales ban, this would further threaten sales of legitimate products, and the loss of revenue for 2017 would be an estimated mammoth Rs. 125 billion.

Most pertinent question

The most pertinent question would be, how does the Government plan to bridge this deficit? For long, successive health ministers, who includes our incumbent President, have argued that these efforts amount to significant savings on health expenditure to treat patients with tobacco and even alcohol abuse. 

But what is this specific cost? Several attempts to derive this cost from the Health Ministry drew a blank, but it would be interesting to note that Government Budget expenditure in 2016 for health was Rs. 175 billion. As per pre October 2016 rates, the Government would have earned an estimated Rs. 125 billion from Ceylon Tobacco Company alone this year. So what is the saving that is generated from these draconian measures? There is none. 

In the context of growing illicit volumes, the Government will have added health expenditure due to the public’s consumption of inferior low-quality products, which will add to the Government’s cost burdens. These added costs and the shortfall of revenue will have to be borne by the public at large, including those who do not smoke or drink, which then raises a number of ethical questions.

Tobacco control policies 

A recent article on the new tobacco control policies in Sri Lanka concluded that “Although the impact of recently implemented policies may not show us any significant outcomes in the short-term, the public health outcomes in the long-term should be immense”. 

If Sri Lanka were able to completely eradicate the consumption of tobacco, from an economic standpoint as depicted from the numbers above, the public savings have little or no impact whatsoever. More importantly, if governments and anti-tobacco lobbies will consider the muting of the legal industry a success and continue to ignore the presence and threat of the criminal illicit industry, then that becomes laughable and an extension of the two-faced policies and action that Sri Lanka is known for. Our policies do little in real for ‘Mathata Thitha’ or ‘Yahapalanaya’

It was also insinuated by some that the sharp raising of prices was to dissuade young smokers. But the sale of tobacco and alcohol products is banned in Sri Lanka for anyone under 21 years of age, or is the Government hereby stating it has failed to enforce this regulation, despite both the tobacco and alcohol industry carrying such communications at outlets. 

What about the beedi trade? Beedi volumes have crossed the three billion stick mark with over Rs. 5 billion in losses to Government annually due to manufacturers finding local alternatives to produce. What action has been taken in this respect? Hundreds of families in the North Central Province, especially women, are rolling beedis for income, what action, taxes or health effects and so-called long-term benefits are calculated in that respect?

Ground realities

In a recent column, President Sirisena and Health Minister Rajitha Senaratne were described as “tobacco control policy champions”. Whilst we do not discredit their intent or achievements, I believe it is important for the public, the President and all policymakers to be mindful, receptive and act in relevance to the ground realities that exist around them. 

To continue to ignore or belittle the factors that threaten the long-term future and stability of Sri Lanka and its people for short-term political gain is an insult to the intelligence of the population that you have pledged to serve. 

Smuggling and production of illegal tobacco and alcohol products are a serious threat to this nation and its people. It dwarfs the existence and activity of the legal trade which contributes significantly to Government revenues, which is of grave importance at this juncture. A legacy of right-minded sustainable development actions will far outweigh and reverberate than those with short-sighted political gain. When will we ever learn?

(The writer is an Attorney-At-Law and serves as a Regulatory Affairs Consultant to leading agronomic institutions in Sri Lanka and Australia with over three decades of experience. He can be reached at [email protected].)