Research Intelligence Unit (RIUNIT) policy papers published this year reveal a significant surge in the illicit tobacco sector, with illicit cigarette market share climbing from 16% in 2022 to 29%. Also, 62% of Tendu leaves used for beedi manufacturing appear to be smuggled.
“These increases in illicit trade are causing substantial revenue losses for the Government. From the trade of illicit cigarettes alone, the revenue loss to the Government stood at a staggering Rs. 79 billion,” said CEO of RIUNIT Sri Lanka, Roshan Madawela.
He emphasised the importance of addressing the significant fiscal deficit prevalent in Sri Lanka. He highlighted the indispensable need to tackle illicit trade that causes significant revenue loss to the State, and is crucial to ensure the country’s financial stability.
He said that addressing the leaks in the tax system should be addressed as a matter of priority rather than shifting the entire tax burden on working people.
The RIUNIT found a considerable gap in tax revenue generated by different tobacco products like beedi, relative to their volumes. Despite beedi holding a 67% market share in the total tobacco market, they only contribute around Rs. 4 billion in tax revenue, representing a mere 3% of total tax revenue from the tobacco market.
RIUNIT’s research indicated that the government implemented substantial increases in excise taxes on legal cigarettes in recent years, ranging from around 44-137% in 2023 alone. These tax hikes stretched consumer affordability and played a crucial role in causing consumers to shift towards cheaper illicit cigarettes.
Chairperson of the Advocata Institute, Murtaza Jafferjee said that it was good that Government did not re tax the tobacco industry as firstly it would have further decrsed government tax revue due to consumption going down due to high prices and people resorting to cheaper ways to find a ‘smoke.”
