Govt. can maintain affordability but earn Rs. 16 b more on cigarette taxes: Study

Thursday, 3 November 2011 01:02 - - {{hitsCtrl.values.hits}}

By Uditha Jayasinghe

On the back of increased prices, an anti-smoking organisation yesterday said that the Government can increase earnings by Rs. 16 billion through raising taxes on all brands of cigarettes but still maintain its affordability when compared with per capita income.

National Authority on Tobacco and Alcohol (NATA) Chairman Prof. Carlo Fonseka has called on the Government to increase taxes on low cost cigarettes after a research conducted by his organisation showed that current measures have no effect on their cost.

Moreover the study, done by Verite Research, also shows that the gap between current cigarette prices and the per capital income of the country is widening. International best practices dictate that the best policy for the Government is to increase cigarette prices in line with rising per capita income.

“When we track the prices of cigarettes since 1980, we can see that per capita income as a share of Gross Domestic Product (GDP) and prices meet three times.

This is in 1980, 1990 and 2000. During the period 2000-2005 there has not been an increase sufficient to meet the increased buying power of the consumer. Even though taxation has increased since 2005, it is still not as high as it could be,” opined Verite Research head Dr. Nishan de Mel.

They point out that the Government can earn an additional Rs. 16 billion annually if prices are increased to match higher buying power as Sri Lanka becomes a middle income country.

Moreover, if sufficient increases were done to catch up 2000-2005 period, the earnings for the Government would touch Rs. 100 billion.

Statistics show that 4.2 billion cigarettes are smoked by Sri Lanka’s 20 million population every year.

However, illegal and low-standard locally produced cigarettes are not counted among this number, putting the total at a much higher level.

Despite this smoking among teenagers in Sri Lanka is still one of the lowest in the world and the government has aggressively increased taxes to curb sales. Awareness of health hazards has also done much to reduce consumption at grass root level.At present the Government earns about Rs. 30 billion annually from cigarette sales, which is second only to the income from liquor taxation.

The activists are lobbying for a tax increase in low cost cigarettes that they insist are the most popular among the poor and cause the most damage to health. Even though the recent Rs. 2 increase affected most high end cigarettes the research showed that it had no impact on low quality products such as Three Roses.

“There must be tax increase across the board because when the cheapest cigarettes are not taxed the consumption among the poor and working class will not reduce.

In addition people that earlier smoked mid-level cigarettes will move to the lower brands as prices of the mid-range increase creating more issues.”

Current data shows that the percentage of taxes as part of cigarette prices is around 57% which is a drop from about 60%-62% in 2005.

“We are not telling the Government how to use the increased revenue from taxes, but what we want to show them is that if taxes are increased it would still be at an affordable level,” Dr. de Mel said.

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