A critique of the ‘Tobacco-Free Generation’ policy

For Sri Lanka, which continues to navigate economic recovery while strengthening public health initiatives, the challenge lies in ensuring that policy choices achieve their intended objectives. Countries with significantly stronger institutions, larger regulatory capacities and far greater economic resources have struggled to suppress illicit markets created by prohibition-style policies. It is therefore ignorantly optimistic to assume that Sri Lanka, with an illicit market that is already rampant, while recovering from economic crisis, would somehow succeed where states with far more conducive and capable landscapes have failed

• Why we should eliminate the demand and not the supply

By Sri Lal Somaweera 

In an ideal world, public policy should be driven by admirable intentions. Few objectives yield broader support than improving public health. It is therefore unsurprising that Sri Lanka is now contemplating a venture in creating a ‘tobacco-free generation’ policy, which would prohibit the sale of tobacco products to individuals born after a specified year (year in discussion is 2010). This prohibition envisages the introduction of a cigarette and beedi free Sri Lanka. At first glance the proposal appears both simple and compelling – prevent younger generations from accessing cigarettes and beedi, over time smoking will gradually disappear.

However, public policy must ultimately be judged not by its intentions but by its outcomes. When examined through an economic lens, the implications of such a policy become considerably more complex.

Persistence of demand

A fundamental lesson in economics is that demand rarely disappears simply because [legal] supply is restricted. When a product continues to be desired but is made unavailable due to law (and not out of genuine unavailability), the market only appears to vanish – but in reality, more often than not, it simply migrates to illicit channels outside the vision of the law.

Sri Lanka itself provides an ideal example of this reality. Consider the entertainment industry - for years, international production houses and distributors have black-listed Sri Lanka as a high-piracy market. Why? Sri Lanka has a relatively strict censorship framework and has often limited or delayed theatrical releases of certain films. This coupled with global streaming platforms such as Netflix and Amazon Prime frequently restricting access to content based on regional licensing limitations, meant that Sri Lankan viewers were often unable to legally access the same catalogues available elsewhere. But these restrictions never meaningfully eliminated demand. Sri Lankan viewers consistently found alternatives to access the content they wished to watch. Albeit through illegal streaming sites or VPN services to circumvent regional restrictions – the underlying demand remained intact and the zealous consumer was able to source the necessary supply.

This example reflects a broader economic principle: when legal supply contracts while demand persists, alternative supply channels emerge to fill the gap. A tobacco-free generation policy of the nature and form that has been proposed by Sri Lanka’s National Authority on Tobacco and Alcohol (NATA) must therefore confront the fundamental question of whether this endeavor will eliminate smoking or merely displace it into unregulated markets.

Effective public policy requires a balance between public health objectives and economic realities. Measures that inadvertently expand illicit trade, reduce regulatory oversight and weaken government revenue are good for neither

Risk of illicit trade

The growth of illicit cigarette markets is not a hypothetical concern. Sri Lanka has already observed early signs of this phenomenon. 

While regulatory and tax measures may have indirectly contributed to reductions in smoking prevalence, they have very directly coincided with the expansion of illicit cigarette trade and the entry of untaxed and unregulated alternatives. For a product that is not even legally available in Sri Lanka, you’d be surprised at the number of ‘Manchester packs’ found in landfills after the recently concluded big match season.

A complete generational ban would be an early Christmas present to these illicit traders. If legal access is removed for an entire cohort while demand persists, illicit suppliers can gladly step in to meet that demand. Such markets operate outside regulatory oversight, meaning that age verification, quality control and product safety standards are unlikely to be enforced. This proposed policy, in attempting to eliminate smoking through prohibition, will likely leave us worse off.

The fiscal aspect

The economic implications extend beyond market behavior. Tobacco taxation constitutes a significant component of Sri Lanka’s public finances. Annual tobacco tax revenue contribution from cigarettes and beedis is estimated to be close to six percent of the total government tax revenue. These funds contribute to essential public expenditure, including healthcare, infrastructure development and debt servicing. Additionally, the beedi industry supports cross sections of low-income earning households across the country, creating much needed economic activity and poverty alleviation. Sri Lanka is presently navigating a period of economic recovery and fiscal consolidation including commitments under an IMF-supported program to strengthen revenue mobilisation. In this context, the gradual erosion of a major revenue source warrants careful consideration.

So, then what?

The tobacco-free generation policy is grounded in a commendable desire to protect future generations from the harms of smoking. Nevertheless, economic evidence and historical experience suggests that prohibition-style measures can produce outcomes that diverge from their intended goals. Demand may persist even as legal supply disappears; illicit markets may expand and significant fiscal resources may be affected.

For Sri Lanka, which continues to navigate economic recovery while strengthening public health initiatives, the challenge lies in ensuring that policy choices achieve their intended objectives. Countries with significantly stronger institutions, larger regulatory capacities and far greater economic resources have struggled to suppress illicit markets created by prohibition-style policies. It is therefore ignorantly optimistic to assume that Sri Lanka, with an illicit market that is already rampant, while recovering from economic crisis, would somehow succeed where states with far more conducive and capable landscapes have failed.

Effective public policy requires a balance between public health objectives and economic realities. Measures that inadvertently expand illicit trade, reduce regulatory oversight and weaken government revenue are good for neither. Instead of eradicating the supply, which this proposed policy aims to do – a more pragmatic solution, which reconciles both economic realities and public health objectives, would be to eliminate the demand. The mechanism of removing the demand warrants a discussion of its own and to mix the “why we shouldn’t do ‘x’”, with the “why we should do ‘y’ instead”, may muddy one and both messages. As such, the proposed alternative will be explored in-depth in future conversations.

(The writer is an independent tax consultant with over 25 years of experience)