Thursday Jun 11, 2026
Thursday Jun 11, 2026
Thursday, 11 June 2026 00:26 - - {{hitsCtrl.values.hits}}
The Government is foregoing an estimated Rs. 17.3 billion in annual revenue by failing to maintain cigarette taxes at levels recommended by the World Health Organisation (WHO), according to an analysis by PublicFinance.lk of Verité Research.
PublicFinance.lk noted that the estimated Rs. 17.3 billion in additional annual revenue exceeds the entire Budget allocation for several Government programs.
According to the analysis, the amount is equivalent to around 1.2 times the Budget of the Disaster Management Ministry, 1.3 times the allocation for nutrition programs, and 2.4 times the cost of maternity leave benefits, highlighting the potential fiscal impact of maintaining cigarette taxes at the WHO-recommended level.
The report noted that while Sri Lanka implemented broad-based tax increases following the 2022 economic crisis, including higher income taxes, an increase in Value Added Tax (VAT) from 8% to 18%, the introduction of the Social Security Contribution Levy (SSCL), and the removal of several VAT exemptions, the effective tax share on cigarettes moved in the opposite direction.
According to the analysis, the effective tax share of the retail price of cigarettes declined by an average of 7.2 percentage points between 2021 and 2026, largely due to the failure to regularly adjust excise duties, which account for the bulk of cigarette taxation.
Unlike VAT, cigarette excise taxes are levied as a fixed rupee amount per cigarette and do not automatically rise when prices increase. As manufacturers raise retail prices, the share of taxes in the final price declines unless excise duties are revised accordingly, the report explained.
PublicFinance.lk noted that Sri Lanka was close to the WHO benchmark in 2018, when taxes accounted for 74% of cigarette retail prices. By 2026, that figure had fallen to 66.8%, below the WHO recommendation that taxes comprise at least 75% of the retail price.
The report estimated that restoring the tax share to 75% while maintaining current consumption levels and retail prices could generate an additional Rs. 17.3 billion in annual Government revenue.
PublicFinance.lk noted that Sri Lanka ratified the WHO Framework Convention on Tobacco Control in 2003 and that the Convention’s implementation guidelines call for regular increases in tobacco taxation to keep pace with inflation and income growth.
The report argued that the policy response required to restore the tax share is relatively straightforward, as cigarette taxation is primarily administered through excise duties that can be revised through a Gazette Notification issued by the Finance Minister without requiring new legislation or Parliamentary approval.
It added that maintaining cigarette taxes at the recommended level would not only strengthen revenue collection but also support the country’s public health objectives while improving the consistency of tax policy across sectors.
